MARC has affirmed Land & General Berhad’s (L&G) Redeemable Convertible Secured Loan Stocks (RCSLS) of up to RM320,962,637 rating at B- (B minus). The rating reflects the secured nature of the RCSLS against several identified securities under the issue structure. However, the supporting factor is mitigated by the Group’s weak competitive position following the on-going corporate restructuring and de-gearing exercise, weak financial performance, impaired cash generation ability and high debt burden.

L&G’s debt restructuring scheme involves among others the issuance of the RCSLS which the Group successfully completed and implemented on 30 July 2003. With the issuance of the RCSLS, L&G managed to part settle debts totaling RM450.49 million. Under the debt restructuring scheme, debts totaling RM101.04 million were settled through the issuance of 16.88 million of RCSLS Series A of RM1 each while the balance of RM84.16 million were paid via a new term loan. The remaining balance of the debts was settled via the issuance of 304.08 million of RCSLS Series B of RM1 each and 45.37 million of new ordinary shares. Proceeds from an asset disposal plan to be executed over the tenure of the RCSLS will provide the funds for interest servicing and redemption of the RCSLS. The asset disposal plan consists mostly of properties and equity interests of the company. Once the restructuring plan is completed, L&G intends to focus on property development as its core business.

The Group is now purely a property company following its exit from the timber business with the disposal of its 51% equity interest in Overseas and General Limited (OGL). On the property front, township developments with respect to its Bandar Sungai Buaya and Lembah Beringin projects have been poor as the Group struggles to improve its marketability and continues with the rehabilitation of the projects. For Bandar Sri Damansara new launches of properties have been limited and take-up rates have also been poor. However, moderating the poor performances in the domestic front is L&G’s investment in the World Trade Centre Melbourne, Australia, which carved a niche for itself within the Melbourne property market and commands a quality tenant profile, benefiting from its strategic location and the buoyant Australian economy.

Group revenue continued to slide further in FY2004 brought about by the limited new property launches as L&G focused on its restructuring scheme. Compounding the situation was the sale of assets, which formed part of the restructuring exercise, resulting in a lower contribution of profits from the Group’s associated companies. As most of the company’s assets are earmarked for the asset disposal plan, L&G has minimal unencumbered assets to accord any financial flexibility. L&G’s long term future profitability and ongoing viability depends primarily on the combination of a successful implementation of the debt restructuring scheme and a turnaround in the company’s performance.