MARC has assigned the ratings of AAAID(bg) and MARC-1ID(s) to the proposed issuance of Arapesona Development Sdn Bhd’s (Arapesona) Islamic Bank Guaranteed Medium-Term Notes (IMTN) Programme of up to RM200.0 million and Islamic Commercial Papers (ICP) Programme of up to RM70.0 million respectively. The outlook of the ratings is stable. Arapesona is a 50:50 joint venture formed by UEM Land Sdn Bhd (UEM Land) and Gamuda Berhad (Gamuda) to undertake and carry out mixed development and golf club development on 1,227.91 acres of land within the township of Nusajaya, known as Horizon Hills (Project). Located within the Iskandar Development Region (IDR), Nusajaya is a key development area within the south of Johor and a new economic growth area identified in the Ninth Malaysia Plan.

The AAAID(bg) rating for the IMTN reflects the unconditional and irrevocable guarantee provided by Public Bank Berhad (Public Bank). The rating reflects the bank’s solid credit fundamentals - excellent asset quality, sound credit management practices and a strong retail funding base. The bank’s good management of costs, the earning power of its franchise, and superior loan quality is reflected in a recurring earnings capability that is typically above peer averages.

The MARC-1ID(s) rating for the ICP programme is based on unconditional and irrevocable undertakings from both shareholders, UEM Land and Gamuda to Arapesona to meet any financial obligation under the rated debt of up to RM280.0 million and any cash flow deficit of the Project and in respect of financial covenants pertaining to the rated notes of up to RM30.0 million. The shareholders’ undertakings are proportional to the size of their shareholdings. The rating reflects MARC’s expectation that both shareholders will continue to support Arapesona fully, and is exclusive of the issuer’s stand-alone fundamentals. The rating also reflects MARC’s belief that this joint venture is significant to both shareholders, and thus there is a low likelihood that they will distance themselves from it. Noteholders of the rated securities are protected by financial covenants, including maximum debt to equity ratio of 70:30 as well as minimum finance service cover of 1.25 times and minimum security coverage ratios of 1.33 times. Additionally, both shareholders are obliged to maintain their present shareholdings in Arapesona. While both shareholders have been assigned identical implied short-term senior unsecured ratings, i.e. MARC-1ID, the factors that underpin the respective assessments and rating outlooks are quite different.

UEM Land is a wholly-owned subsidiary and property-development arm of diversified public-listed company UEM World Berhad (UEM World). UEM World is 50.8% owned by UEM Group Berhad (UEM Berhad), which in turn is wholly-owned by Khazanah Nasional Berhad, the investment holding arm of the Government of Malaysia. As part of the conditions precedent, UEM World will submit a letter of awareness to the Security Trustee. The letter of awareness stipulates that as long as any amounts remain outstanding under the facilities, UEM Land will remain a subsidiary of UEM World and that the former will be managed with sound commercial and financial practices. While not legally binding, MARC views the letter of awareness as an indicator of UEM World’s support for both Arapesona and UEM Land’s obligations in respect of Arapesona’s debt financing. Apart from its adequate financial profile and performance, MARC considers UEM Land’s government-related entity status as key to maintaining its short-term rating. Through its subsidiaries, the Gross Development Value (GDV) of UEM Land’s ongoing projects is estimated at RM623.0 million to date, with future projects to generate estimated GDV of RM3.67 billion.

Listed on the Main Board of Bursa Malaysia since 1992, the Gamuda Group has established a good track record in its core businesses, which include engineering and construction; infrastructure concessions; and township development. Gamuda registered lower revenue and profit before tax (PBT) performance for FY2006 at RM1.23 billion (FY2005: RM1.66 billion) and RM278.5 million (FY2005: RM412.7 million) respectively on the back of lower contribution from its construction division arising from smaller domestic construction order book, completion of existing projects and early stages of several overseas projects. Going forward, the engineering and construction division with outstanding construction order book of approximately RM4.0 billion as at February 2007 will strengthen the future revenue and profit of the Group. In addition, the infrastructure and water concessions; and township development will continue to provide stable support to the Group’s cash flow and profitability.

The strong property development expertise of its shareholders bodes favourably for the RM2.15 billion proposed development, Horizon Hills. In light of uncertainties inherent in this development and the expected development time frame of 12 years, shareholders’ support will be fundamental to the successful take-off of the project. The growth rate of Nusajaya, the IDR and expanding neighbouring areas are expected to spur the demand for the residential and commercial development within Horizon Hills. In line with the 9MP, Nusajaya will be host to several major catalyst projects such as the Johor State New Administrative Centre, a waterfront development called Puteri Harbour, a thematic industrial park known as Southern Industrial Logistic Clusters, an integrated education hub to be known as EduCity, a medical hub and an international destination resort. These developments, and its close proximity to major established cities like Johor Bahru and Singapore will position Nusajaya as an attractive investment for both local and international investors. However, MARC is cautiously optimistic of the long-term demand for the Project amidst the challenging outlook of the property market particularly in light of the property glut in Johor Bahru and dampened consumer sentiments.