MARC has reaffirmed the rating of Europlus Corporation Sdn Bhd’s (ECSB) RM350.0 million Murabahah Underwritten Notes Issuance Facility (MUNIF) at MARC-3ID. The reaffirmation reflects the substantial locked-in sales from developments secured under the MUNIF which essentially acts to mitigate market risk, normalization of construction works in the last nine months and ECSB’s timeliness in remitting sinking fund obligations under the MUNIF. MARC is, nevertheless, wary of ECSB’s above average operational sensitivity to industry wide risk factors (i.e supply shortages) that poses a potential threat to timeliness in completion of construction works.

Besides the maintenance of a SFA and DSRA additional liquidity buffers are also provided under the issue structure where in the event the aggregate value of sales proceeds should fall below 1.43x, ECSB is obliged to procure the assignment of proceeds from other developments so as to maintain the 1.43 times coverage. As stipulated under the MUNIF’s issue structure, remaining proceeds from projects initially assigned under the redeemed BAIDS issue will be assigned to the MUNIF’s SFA as additional liquidity buffer.

Total receivables from secured sales of the Bukit Beruntung I, II & III, Lagoon Perdana, Kinrara Section 3 and Pulau Melaka developments as at 30 October 2004 amounted to RM477.5 million. This
is supported by receivables from Putra Perdana and Ukay Perdana which amounted to RM417.5 million. Based on an outstanding MUNIF amount of RM215.0 million (net of redemptions to date), the receivables coverage on the outstanding amount is in excess of 4 times. The MUNIFholders’ exposure is hence adequately covered by the secured sales, despite the above average market risks of several developments secured under the facility.

ECSB posted weaker results in the ten-month period ending 31 January 2004 with revenue and pre-tax profit decreasing by 52.6% and 43.1% to RM198.5 million and RM18.6 million respectively. Its weaker bottomline result reflects the slower rate of new launches and the sluggish demand for the Bukit Beruntung and Pulau Melaka developments. Margins, as expected, continued to shrink attributable to lower sales volume and a product mix strategy that was geared towards lower priced properties. We expect future margins to remain in the single digit region given the shrinking volumes and the recent on-going launches which are generally in the lower margin category. The company’s cash flow position remains strong aided by the strong operating cash flow and the reduction in interest expenses after the full redemption of the BAIDS and partial redemption of the MUNIF. Debt-equity as at end October 2004 stood at 0.9 times; a reduction from 2.0 times registered in March 2003