The long term ratings of Glomac Berhad’s (Glomac) RM60 million Junior Bai’Bithaman Ajil Islamic Bonds (Junior BaIDS) and RM25 million Murabahah Notes Issuance Facility / Islamic Medium Term Notes (MUNIF/IMTN) have been downgraded to A-ID while the short term rating for the MUNIF/IMTN has been reaffirmed at MARC-2ID. The ratings have been accorded a stable outlook. The ratings downgrade is premised on the soft property market, slower take-up rates from Glomac’s existing developments as well as weak cash flow generation from operating activities. Glomac had in January 2006 fully redeemed its RM50 million Senior Bai’Bithaman Ajil Islamic Bonds (Senior BaIDS). In addition, Glomac has deposited RM28.1 million into the Finance Service Reserve Account for the scheduled redemption of RM25 million of its Junior BaIDS by end of January 2007.

Glomac is a property development group founded in 1988. The Group has received recognition for its commercial development projects in Kelana Jaya and the success of its residential development in Aman Suria Damansara. However, the Group’s current flagship development, a luxurious condominium development in the vicinity of KLCC called Suria Stonor has not been emulating the success of its Aman Suria Damansara. Although break even sales has been achieved, sales has been slow for the remaining higher-end units owing to the soft property market and proliferation of many high end developments in the KLCC area. Nevertheless, Suria Stonor is expected to be self-sufficient in meeting its own financing obligations. Residual cash flows are only expected to flow up after the full redemption of the 3-year debt issue due to its tight ring-fencing structure.

Glomac continues to undertake township developments, its current developments being Bandar Saujana Utama, Saujana Rawang and Sri Saujana in Johor; commercial development in Kelana Jaya and other mixed developments in Selangor and Melaka. Property development contributes more than 85% of the Group’s revenue. The Group’s other two major principal activities of property investment and construction serve mainly to complement its property development activities.

Glomac’s revenue and profit before tax have improved by 9% and 10% respectively in FY2006. However, revenue and PBT in 1Q FY2007 has shown a q-o-q decline of 44.6% and 76.0% to RM52.8 million and RM6.5 million respectively. The net negative cash flows from operating activities are a result of the Group’s land bank acquisitions. The Group continues to leverage upward and with the debt incurred for the construction of Suria Stonor and from its participation in unsecured Collateralized Loan Obligation (CLO) programmes, its leverage ratio will edge towards 1.0x.