MARC has downgraded the rating of Perspektif Perkasa Sdn Bhd’s (“PPSB”) RM188 million Murabahah Underwritten Notes Issuance Facility (“MUNIF”) from MARC-3ID to MARC-4ID. Concurrently, the rating has also been placed on MARCWatch with a Negative Outlook. PPSB is the developer of Bandar Pinggiran Cyber, an 800-acre township to be located at the fringe of Cyberjaya.

MARC’s action by downgrading the rating of the MUNIF and placing it on a Negative Outlook is because of the unsatisfactory progress of the residential developments at Bandar Pinggiran Cyber, which forms the main source of repayment for the MUNIF, where development works has now virtually stopped. The halted progress of works has consequently affected the developer’s cash flow and led them to miss their first sinking fund payment of RM25 million scheduled in July of 2005. Furthermore, we opine that due to PPSB’s weak financial capacity, the developer is unlikely to resume works on Bandar Pinggiran Cyber and any attempt to continue with the development works would have to resort to a restructuring scheme.

The proposed development was expected to take about seven to eight years consisting of 11,125 units of mixed development properties with a gross development value of RM1,556.3 million. However up until 30 June 2005, PPSB has managed to develop only 80 acres of the 800 acres earmarked for Bandar Pinggiran Cyber. So far, the developer has developed 2,533 units of Single Storey Terrace Houses and managed to sell 1,957 units. Secured sales and remaining billings amounted to RM139.83 million and RM46.35 million respectively. Although sales have been encouraging, work on the residential units have been disappointing. Consequentially, PPSB was only able to bill about RM34 million of work done, leaving approximately RM224.8 million of unbilled sales. A progress report from the Independent Quantity Surveyor has indicated for Phase 3D1, only 27.4% of the development works have been completed against a scheduled progress rate of 63.4%, resulting in a delay of 98 days.

Work on Bandar Pinggiran Cyber was halted as the developer was affected by labour shortages and acute shortage in certain building materials i.e. steel bars following the surge in the price of raw materials. Furthermore, we were informed by the management of PPSB that the shortage in ready-mixed concrete had also hampered work. This then had adversely affected PPSB’s anticipated progress billings which then impacted the developer’s cash flow projections. Arising from this, PPSB missed the fist scheduled sinking fund payment of RM25 million due on 24 July 2005. In PPSB’s effort to meeting the first scheduled payment and the second repayment of RM30 million due in July 2006, we have been made to understand that PPSB was in negotiation with an interested buyer for the sale of approximately 319 acres of the development land for RM63.8 million. However, to-date, progress on the proposed sale of the land has been very slow.

In addition to the first proposal, we have been informed by PPSB that they are also in negotiations with another interested buyer to dispose 720 acres of the project land. Negotiations are still on-going and the Sale & Purchase Agreement for the sale of land is expected to be finalised by May 2006. Under the proposed scheme, proceeds from the sale of the land will be utilised towards repaying RM140 million of the MUNIF. While the source of repayment for the remaining RM48 million of the MUNIF will be from the existing properties currently being developed by PPSB. At this juncture PPSB is of the opinion that the proposed sale of land to this party is a more viable option as the valuation of the land is higher than that proposed by the first party. Furthermore, the sale of land is for a larger piece thus allowing PPSB to redeem almost 75% of the MUNIF should the sale go through.