RAM Ratings has reaffirmed the respective long- and short-term ratings of BBN Development Sdn Bhd's (BBND or the Group) RM86 million Bank-guaranteed Murabahah Commercial Papers/Medium-Term Notes Programme (2004/2011) (MCP/MMTN), at AA3(bg) and P1(bg). The long-term rating has a stable outlook.
The ratings reflect the unconditional and irrevocable guarantee extended by AmInvestment Bank Berhad (AmInvestment), the financial institution ratings of which were reaffirmed at AA3/P1 by RAM Ratings on 16 December 2010. Under this structure, all risks associated with the MCP/MMTN will be absorbed by AmInvestment. The bank guarantee enhances the credit profile of the debt facility beyond BBND's inherent or stand-alone credit risk.
BBND is the developer of Putra Nilai, a township in Negeri Sembilan. Launched in 1994, Putra Nilai has gradually matured and is now an established education hub. The maturing township and improved amenities are expected to continue supporting its development prospects. However, these positives are moderated by keen competitive pressures and BBND's geographical concentration risk, as all of its developments and remaining undeveloped land bank (of some 1,614 acres) are located in Putra Nilai.
Notably, the Group's balance sheet shows a track record of low gearing levels and modest debt coverage. Its gross gearing has averaged at about 0.23 times over the past 5 years. Meanwhile, its funds from operations debt coverage ranged between 0.08 and 0.13 times over the same period, with the exception of fiscal 2008, when its performance had been lifted by significant land sales. BBND's liquidity profile, however, remains tight. It currently has RM30 million of outstanding MCP that will mature in December 2011. We note that the Group depends much on land sales or refinancing options to meet this redemption. Nonetheless, the redemption of RM25 million of MMTN maturing on 31 December 2010 will be sufficiently covered by the RM29.51 million in its designated accounts for the facility as at 20 October.
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security's market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations, transfer and convertibility risks, repatriation risk, currency risk or any other risk apart from credit risk.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings' credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings' credit-related analyses and commentaries, where relevant.
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Media contact
Anne Yap
(603) 7628 1038
anne@ram.com.my
© Press Release 2010
