The rating of Kuala Lumpur Sentral Sdn Bhd’s (KLSSB) RM720.0 million Al-Bai Bithaman Ajil Islamic Debt Securities (BaIDS) comprising Tranches 2B, 3, 4A & 4B has been upgraded to A+ID(s) with a stable outlook reflecting the support provided by Bank Pembangunan Malaysia Berhad (BPMB) (formerly known as Bank Pembangunan dan Infrastruktur Malaysia Berhad or “BPIMB”) by way of a standby revolving credit (RC) facility. The RC facility, which covers the amount outstanding of the BaIDS, was provided as a support to KLSSB in meeting its obligations for the timely redemption of the primary and secondary notes under the BaIDS facility. MARC assigned BPMB a long-term financial institution rating of A+ upon the completion of BPIMB’s integration with another leading governmental development financial institution, Bank Industri & Teknologi Malaysia Berhad. The rating is a notch higher than BPIMB’s previously assigned long-term financial institution rating of A, reflecting BPMB’s improved capacity to meet future challenges, its increasing role as an integral instrument of government policy as well as management’s continuing progress around corporate governance and risk management. The financial institution rating carries a stable outlook.

In June 1994, the Malaysian Government awarded the concession to develop a railway hub at the Railway Yard in Brickfields to a consortium led by Malaysian Resources Corporation Berhad (MRCB). In return, KLSSB, a joint venture company which is 64.4% owned by MRCB was granted the rights to develop the area surrounding the station. The overall commercial development will be developed progressively in four phases and is expected to be completed by the year 2012. The mixed development component comprises retail, office towers and strata offices, condominiums, service apartments, hotels, and recreational/leisure facilities, amidst 60 acres of land. Total gross development value as at June 2006 stood at RM1.06 billion of which approximately RM767.18 million remained unbilled.

KLSSB’s revenue increased significantly by 142.3% to RM232.7 million in FY2005 (FY2004: RM96.0 million) due to the ongoing development of Plaza Sentral, Phase 2 and the sale of Parcels A and D of Lot J. However, operating profit margin dipped to 17.7% on the back of higher costs associated with the sale of land. Although the sale of parcels in Lots A, B, and J of Phase 2 and Lot G of Phase 1 were forecasted to drive revenue for FY2006, some of these sales are only expected to come through in FY2007. For the 6 months ended 30 June 2006, KLSSB registered a revenue of RM55.78 million, 45.7% short of achieving its pro-forma projected revenue.

For FY2005, cash flow from operations (CFO) interest coverage fell to 1.82 times as CFO deteriorated to RM130.4 million compared to RM182.4 million in FY2004. The higher CFO registered in FY2004 was partly attributed to the collection of RM125.0 million from UDA Holdings Berhad (UDA). The cash flow projections appear to lack robustness for FY2007 and FY2008 due to the lower net cash available after development arising from the higher development costs with relatively higher principal repayment. KLSSB is required to make principal repayment of RM200.0 million (Tranche 2B) and RM150.0 million (Tranche 3) in April 2007 and April 2008 respectively. Based on its interim financial performance vis-à-vis projections, it appears that KLSSB’s ability to meet the said repayment is doubtful amidst generally weak consumer sentiments and is highly likely to draw on BPMB’s revolving credit facilities to ensure timely repayment.

The finance-to-equity ratio improved to 4.74 times on the back of higher shareholders’ funds of RM91.0 million as at 31 December 2005. Constrained by the onerous debt burden, KLSSB has managed to pare down its debt with the repayment of Tranche 2A amounting to RM80 million in April 2006. Based on FY2005’s audited result, KLSSB’s FSCR was at 2.88 times, above the covenanted 1.25 times under the issue structure.

Nevertheless, MARC draws comfort from the fact that should KLSSB suffer any deficit in its cash flow position, it can call upon the standby credit line from BPMB to fully meet the redemption of the primary and secondary notes on a timely basis. Additionally, the shareholders of KLSSB, i.e. MRCB and Pembinaan Redzai Sdn Bhd (PRSB) are required to provide support to KLSSB in accordance with the Shareholders Support Agreement.