The rating of MK Land Holdings Berhad’s (MK Land) tranche 1 and tranche 2 serial bond ratings have been downgraded to A reflecting the the vulnerability of the projects to developments in the local property market ; lower than expected take up rates of its recent launches in Damansara Damai (DDamai) and Damansara Perdana (DPerdana) projects, (from which the sales proceeds have been assigned for the redemption of the bonds); and the company’s declining profitability and margins. This is, however, moderated by the company’s strong liquidity position and its manageable gearing levels.

MK Land is one of the leading property developers in Malaysia. As at September 2005, its unutilized land bank which measures 5,300 acres has an estimated gross development value of RM14 billion, which is more than sufficient to sustain its future earnings. MK Land has nine projects located in Selangor, Perak and Kedah, with three key projects in the Klang Valley. The three key projects are DPerdana being developed by Saujana Triangle Sdn Bhd (STSB), DDamai being developed by Medan Prestasi Sdn Bhd (MPSB) and Cyberia Smarthomes being developed by Paramoden Sdn Bhd (PSB).

The good location and accessibility of the DDamai and DPerdana projects aided by the recent spurt of commercial activities in the surrounding areas contributed to the strong take up rates. The overall average take up rate stood at around 70% as at June 2005. DDamai and Dperdana sales
proceeds have been earmarked for the redemption of the bonds. Total receivables amounting to RM531.18 million as at June 2005, provided a security coverage of 2.26 times well above the minimum coverage of 1.43 times required under the debt issue structure.

Liquidity risk is mitigated through the requirement for a gradual build up of funds in the SFA and the maintenance of one coupon payment in the Coupon Service Account at all times. As at November 2005, the balance in the SFA stood at RM26.4 million, as scheduled.

MK Land’s revenue for financial year ended 30 June 2005 was RM904.99 million versus RM925.67 million in FY2005, reflecting a decrease of 2.23%. The major contributors to the company’s revenue continued to be derived from its three key projects located in the Klang Valley, namely : Damansara Perdana, Damansara Damai and Cyberia project. The company however, posted a pre tax profit of RM164.50 million compared to the RM221.33 million achieved in the previous financial year. The lower profit was attributed to a RM25.5 million provision for liquidated damages (LAD) and higher cost of sales.

The group’s debt leverage in FY2005 decreased to 0.37 times (FY2004 : 0.42X). In addition, its cashflow protection measures remained strong in FY2005 despite the repayment of RM40 million of the Tranche 1 bonds.