MARC affirms the rating of AID (A flat, Islamic Debt) assigned to Maxisegar Sdn Bhd (MSB)’s RM250.0 million Al Bai Bithaman Ajil Islamic Debt Securities on the back of its strong competitive position and good location of its property development; tempered by any adverse development in the property markets.

MSB, a wholly owned subsidiary of Talam Corporation Berhad (TCB), one of the largest property developers in the country, is principally involved in property development activities and investment holding. Among its major on-going projects include Taman Puncak Jalil, Saujana Damansara, Bukit Sentosa III and Berjuntai Bistari (Shah Alam 2).

Under the issue structure, progress billings from six phases within the Taman Puncak Jalil (TPJ) development have been assigned to the Facility as the source of repayment for the BaIDS. Located next to Technology Park Malaysia along the Sungai Besi-Puchong Road, TPJ is an integrated and self-contained township easily accessible via major highways. To date, four out of the six phases have been launched and achieved 100% take-up rate, aided by attractive pricing, location and development mix of TPJ. As a condition precedent under the issue structure, total receivables from the secured sales under the assigned phases must be at least 1.43 times the Facility’s size.
MSB’s track record of timely completion of projects and the strong support from its holding company, TCB, in terms of management and expertise mitigate construction risk to a certain extent. Funding for the construction works in respect of TPJ is controlled by the Security Agent, with withdrawals allowed only against relevant certification of works done.

Refinancing risk will be largely mitigated by the serial redemption payment structure of the BaIDS. The maintenance of a six-month liquidity buffer in a debt service reserve account mitigates liquidity risk.

In FY2004, MSB reported a drop of 75.3% in its profit before tax due to provisions made for liquidated ascertained damages (for other developments besides TPJ) and a discount on deferred progress billings charged to the income statement in relation to an Islamic Asset Backed Securitization exercise. Notwithstanding the weaker profitability, the company’s cash flow position remains intact whilst its debt leverage position improved significantly. MARC’s sensitivity analysis on the projected financials of the assigned phases reveals a resilient cash flow position under various assumptions of delays in progress billings.