MARC has assigned a rating of A to Berjaya Land Berhad’s (‘BLand’) proposed issuance of five-year Secured Exchangeable Bonds with nominal value of up to RM900 million. The rating reflects the strength of its associated company, Berjaya Sports Toto (“BToto”) of which the shares form the exchange property, its competitive position as the sole national lotto operator with over 680 outlets throughout the country; the adequate interest coverage from the potential dividends of the pledged shares of BToto; and sound financial track record of BToto coupled with an explicit dividend payout policy of 75% of its net earnings. The rating also reflects the stable margins of Numbers Forecast Operators (“NFOs”) and continued growth of the gaming industry in Malaysia. Factors moderating the rating include BToto’s exposure to risks inherent in the gaming industry such as changes in the economic condition which affect consumer spending although to a lesser extent in the gaming industry; changes in government regulations and gaming legislation; BLand’s lacklustre financial profile and the cyclical property market.



The issuer, BLand is an investment holding company principally involved in the provision of management services to its subsidiary companies. The Group is engaged in three core activities: vacation timeshare, hotels, resorts & recreation development and others; property investment and development; and gaming and lottery management. BLand has 46.8% equity interest in BToto, a major contributor to the Group’s profitability and cashflows. For the past nine financial years, BToto has managed to achieve stellar results evident by the revenue and pre-tax profit contribution of more than RM2 billion and RM300 million respectively since 1998 with average net profit margin of 13.5%. For FY2006, BToto achieved record revenue of RM2.94 billion, a 10% increase from the previous financial year attributed to the additional draws, strong sales from the Super 6/49 game and maiden contribution of the 4-Digit i-Perm game. Pre-tax profit rose 17.3% to RM571.9 million with operating profit margin of 17.9%. Historically, the Toto betting operations in Malaysia has proven to be a major revenue and profit contributor to BToto and is expected to remain so, going forward. Barring unforeseen circumstances, MARC views the revenue and profit contribution from the Toto betting operations to be stable over the short to medium term with the moratorium on issuance of new licences.

Based on BLand’s FY2006 results, revenue appeared to be on a reducing trend since FY2003 (due to the deconsolidation of BToto’s results). As at FY2006, the Group recorded revenue of RM561.5 million, a 16.1% decrease compared to FY2005 mainly attributed to the full year effect of deconsolidation of Matrix International Berhad (“Matrix”) in the current financial year after the dilution of the Group’s equity interest in Matrix effective 31 December 2004. Its pre-tax profit however has shown significant improvement. The higher pre-tax profit attained was mainly due to higher share of results of associated companies (mainly from BToto) in the current financial year coupled with lower exceptional losses. Going forward, increase contribution from the resorts and recreation operations is expected to support the Group’s revenue.

The Group’s cashflow position in FY2006 weakened as compared to the previous year due to lower operating cashflow as a result of lower cash receipts. The Group’s cashflow from operations was insufficient to service its debt obligations evident by the further deterioration of Cashflow from Operations (“CFO”) coverages for FY2006. This also caused the Debt Service Coverage Ratio (“DSCR”) to deteriorate to 0.34x from 0.83x due to higher repayment of borrowings and interest paid compared to FY2005.

Although the total amount of borrowings were slightly reduced, the Group’s debt leverage position in FY2006 has increased significantly to 1.0x mainly due to lower shareholders’ fund by 47.1% in that financial year compared to the previous year. The lower shareholders’ fund is attributed to significantly lower reserves as a result of capital repayment of RM0.80 per BLand share and distribution of dividend-in-specie of gross 65% less 28% income tax. With the proposed issuance of RM900 million exchangeable bonds, its pro-forma debt-equity ratio is expected to rise to 1.48x.