The rating of OSK Property Holdings Bhd (OSKP)’s Class A and B BaIDS has been affirmed at AID and A-ID respectively; reflecting OSKP’s strong presence in Sungai Petani, Kedah with its favourable flagship development – Bandar Puteri Jaya (BPJ) and improving financial performance; tempered by its vulnerability to adverse developments in the property markets. The enhanced AID rating reflects secured sales receivables identified as repayment source for the Class A BaIDS.

OSKP, listed on the Main Board of Bursa Malaysia, spearheads the property business of OSK Holdings Berhad, an established player in the local stockbroking industry. BPJ, an integrated garden township, has been well received whereby the maiden Phases 1 and 2 had recorded average take-up rate of more than 90%. Phase 3 of BPJ also posted an encouraging take-up rate of 40% within the first month of launching in December 2004.

To broaden its income base, OSKP has been involved in other property projects located in Seremban, Sungai Buloh and Kajang. Demand for the Seremban project - Seremban 3 - have been commendable against a lacklustre performance in the state’s property market. The Sungai Buloh and Kajang projects are expected to be launched in 2005 where the Kajang project adjacent to Country Heights has been earmarked as OSKP’s foray into the high-end market. In addition, OSKP is also acquiring Ke-Zan Holdings Bhd (KHB) from its holding company subject to the approval of the Securities Commission; a property investment company owning Plaza OSK and six other office blocks that are mostly occupied by companies within the group.

Under the issue structure, sales receivables under BPJ’s projects have been identified as the main source of repayment for the BaIDS. As at December 2004, the total sales receivables of BPJ and Seremban 3 stood at RM66.9 million; translating into a security coverage ratio of 1.34 times. While the coverage ratio was marginally lower than the covenanted 1.43 times, it still provides sufficient protection to the Class A bondholders reflected by the more than one-time security coverage ratio. The shortfall in the coverage ratio was attributable to delay in launching of Phase 3 due to additional works done to fulfil new requirements enforced by the local authorities. MARC takes comfort that the issues had been resolved and expects sales from Phase 3 to support the security coverage ratio going forward. The security coverage breach does not constitute an event of default under the issue structure.

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 and reserve account respectively will mitigate liquidity risk.

OSKP’s revenue and profit before tax improved substantially aided mainly by the strong sales ofr BPJ’s properties. FY2003’s financials reflected OSKP’s first full year financial performance as a property developer after completion of the group-wide streamlining exercise in August 2002. Hence, the drop in operating margin in FY2003 is expected given the capital-intensive nature of its current business. OSKP’s capital structure has been solid with a debt-equity ratio of 0.31 times as at December 2003. Under the issue structure the debt-equity ratio is capped at 1.25 times.