Putrajaya Holdings Sdn Bhd’s (PJH) Islamic debts’ ratings have been maintained at AAAID /MARC-1ID with a stable outlook premised on the strength of PJH’s financials and robust cash flows from consistent sub-lease rental collection from a strong off taker i.e. The Government of Malaysia (GOM).

PJH is the concessionaire and developer of Putrajaya on a privatised basis. Under a Concession and Supplemental agreement entered into with the GOM, PJH is to construct Government Buildings on a privatized basis over two phases. Upon completion of these buildings, the Government will grant PJH a 25-year lease for the land. PJH will simultaneously sub-lease the land and buildings back to the Government for a matching period of 25 years in return for specified rental streams. Maintenance of the buildings will be undertaken and borne entirely by the Government. Under the sub-lease agreements, the rental rates will be revised upwards at an annual compounded rate of 3.0% every three years for a specified period and thereafter at a flat rate. For the contract involving the construction of Government Quarters, PJH will bill the Government progressively for construction work done.

The ratings of the Bai’ Bithaman Ajil Bonds Facilities (BBA Bonds) reflect the credit of the Government as the source of repayment are secured with the assignment of sub-lease payments by Government for the Government buildings under Parcels A, B, Public Facilities Precinct 10; Parcels C & D and Parcels Wisma Putra, the Deputy Prime Minister’s Residence and the Ministry of Finance. The sub-lease rental income streams will be captured in designated accounts where it will be solely utilised for the payments of primary and secondary bonds, affording a high degree of stability and predictability to the issue specific cash flows. The progressive reduction of the debt in a serial manner over the tenure of the Facilities significantly mitigates refinancing risk.

The ratings of RM1.5 billion million Murabahah Notes Issuance Facility (MUNIF) (Precinct 4G1-4G4 and Putrajaya International Convention Centre (PICC)) and RM1.5 billion Murabahah Commercial Papers and/or Medium Term Notes Programme (Government Quarters) reflect the credit risk of PJH as both of the issues are unsecured. Nevertheless, note holders can take comfort from negative pledges given by PJH for these two issues.

The ratings for the RM2.2 billion Murabahah Medium Term Notes Programme (MMTN) currently reflect the credit risk of PJH. The structure is however strengthened by the future assignment of sub-lease payments from Parcel A, B, C, D and public facilities in Precinct 10 commencing in 2011 after the BBA Bonds have been fully redeemed.

PJH recorded revenue growth of 11.6% to RM1,468.5 million in FY2006 due to higher rental incomes following the execution of sub-lease agreements for Parcel E, MOF Complex and Precinct 4G1-4G2. A reduction in cost of sales has resulted in a significant increase in the operating profit margin to 40.6%. Profit before tax registered substantial improvement up 84.7% to RM319.4 million. The gearing ratio reduced to 2.49x from 2.74x owing to higher shareholders’ funds despite further draw downs of the RM2.2 billion MMTN and RM1.5 billion MUNIF (Government Quarters) facilities. PJH fully redeemed the RM910 million MCP/MTNs for Parcel E in August 2006 and decided to terminate the facility. The gearing is capped at 4.0x.

PJH’s exceptionally strong financial flexibility is drawn from the strength of its ultimate shareholders, PETRONAS and Khazanah, cash balances of RM848.8million as at 30 June 2006 and unutilised credit lines of RM1.33 billion.