MARC has assigned a rating of AAAIS(fg) to 1 Warisan Sdn Bhd’s (1 Warisan) RM170.0 million 7-year Islamic Medium Term Notes (IMTN) Programme. The rating carries a stable outlook. The assigned rating and outlook are underpinned by an unconditional and irrevocable Kafalah Guarantee provided by Danajamin Nasional Berhad (Danajamin) in relation to the IMTN Programme. MARC currently rates Danajamin’s financial strength as AAA/stable on the basis of its important role as Malaysia’s first and sole financial guarantee insurer, its status as a government-sponsored entity, its solid capital base, ample liquidity and conservative investment policy.

1 Warisan is a special purpose funding vehicle created to facilitate the issuance of the notes under the rated programme on behalf of property developer Gema Padu Sdn Bhd (Gema Padu, or the group). The proceeds from the issuance of the IMTN will be largely used to finance the group’s existing and new property development projects at its Kota Warisan township and in the vicinity of Kota Warisan and to finance the redemption of bank loans obtained earlier to finance land and development costs. The group plans to launch new projects with a gross development value (GDV) of RM1.5 billion over the next four years. An agreed portion of proceeds from the sale of properties under the pre-identified projects financed by the IMTN programme will be deposited into a sinking fund to provide for repayment when the IMTNs mature. The availability limit of the seven-year programme will be reduced based on a reduction schedule; the first annual reduction commences in 2015.

Gema Padu is involved in property development, construction, agriculture, plantation operations, and retail of petrol and rental of machineries. Property development and construction activities are the mainstay of the group, generating close to 90% of consolidated revenue.

The 600-acre Kota Warisan township in Sepang, Selangor was first launched in 1999. Kota Warisan is the nearest township to Kuala Lumpur International Airport (KLIA), and is poised to benefit from growth in residential and commercial demand with the construction of KLIA 2 (the new permanent Low-Cost Carrier Terminal (P-LCCT)). KLIA 2 is expected to be operational by the third quarter of 2012 with passenger capacity doubling to 30 million. Easy accessibility through four major highways and the Express Rail Link connecting Kuala Lumpur city centre to KLIA will further contribute to population growth. Currently, 350 acres of the land bank have been developed into mixed residential and commercial properties with GDV of over RM400.0 million. When fully developed, Kota Warisan’s population of 15,000 is expected to increase to 50,000. Kota Warisan is expected to be fully developed by 2018. Gema Padu’s latest offering is Warisan Heights @ Airport City Business Centre, a serviced apartment project with a GDV of RM180.0 million comprising four blocks. Other planned developments during the tenure of the IMTN programme include retails shops and shop offices, double storey terrace houses and bungalows.

Based on its unaudited accounts for the financial year ended December 31, 2010, the group recorded a revenue of RM83.3 million (FY2009: RM75.3 million) and pre-tax profit of RM11.2 million (FY2009: RM4.4 million). The group has maintained a profitable track record with revenue almost quadrupling over the past six years. Operating profit margins strengthened to 18.8% (FY2009: 8.99%) mainly due to higher value property launches and capital gain from sale of land. Gearing as measured by the debt-to-equity (DE) ratio was unchanged at 0.84 times (x), the bulk of which is in the form of long-term borrowings. Gema Padu’s expected cash flow generation supports its debt maturity profile.

MARC views Gema Padu’s ongoing level of profitability to be satisfactory, however this is tempered by the concentration of its revenues and earnings on a single township. At the same time, MARC notes the satisfactory take-up rates for the group’s property launches to date and is of the view that the maturing township and the general affordability of its offerings should augur well for future buyer demand. The bulk of its planned residential offerings fall below the RM250,000 category and could benefit from government’s recently announced “My First Home Scheme” home ownership programme which grants 100% financing for single adults and households earning no more than RM3,000 to purchase houses priced between RM100,000 and RM220,000.

Overall, MARC expects the projects financed by the IMTNs to be well received premised on the proximity of Kota Warisan to KLIA and the relative affordability of Gema Padu’s property offerings. While the property sector is susceptible to the inherent cyclical nature of the industry, noteholders are nevertheless insulated from any downside risks in relation to the group’s credit profile by virtue of the guarantee provided by Danajamin. Any changes in the supported ratings or rating outlook will be primarily driven by changes in Danajamin’s credit strength.

Contacts:
Sabesh Parameswaran, +603-2082 2260/ sabesh@marc.com.my;
Francis Xaviour Joe, +603-2082 2279/ fxjoe@marc.com.my.