Maxisegar Sdn Bhd - 2000

The rating reflects the strength of the underlying issue structure, in which, secured sales from specific property development projects have been earmarked for the redemption of the BaIDS issue.  Positive features of the issue structure include security coverage of 1.28 times the total BaIDS outstanding, maintenance of minimum balances in a sinking fund account (SFA) and a six-month debt service liquidity buffer. The rating, is however, moderated by Maxisegar Sdn Bhd’s (Maxisegar) high proforma debt leverage and its vulnerability to adverse developments in the local property market.

Maxisegar was incorporated in 1983 as a wholly owned subsidiary of Talam Corporation Berhad (Talam); with property development as its core activity.  Currently, it is developing Bukit Sentosa III project located in Serendah.  Through recent internal group restructuring, Cekap Mesra Development Sdn Bhd (CMSB) which was previously a subsidiary of Talam, has been divested to Maxisegar.  CMSB is the developer of Danau Putra project located in Puchong.

The RM300 million BaIDS issue will be backed by RM384 million of secured sales (equivalent to 1.28 times security coverage) from the Danau Putra and Bukit Sentosa III projects; substantially mitigating market risk hence providing adequate security coverage to bondholders.  In addition, market demand is expected to be sustainable given the large affordable residential component of the respective development. 

Sales performance achieved to date has been quite impressive with average take-up rates of 91% and 87% of gross development value launched, for Danau Putra and Bukit Sentosa III projects respectively.  Total amount  billed for both projects as at 3 December 2000 were RM508 million, with remaining billings of RM371.7 million.

The credit risk is not concentrated and spread over a large number of purchasers; 85% and 72% of the units sold for Danau Putra and Bukit Sentosa III projects respectively have secured end-financing facilities either from financial institutions or the Government. The construction and timely completion risk are mitigated through the control of all project’s operating accounts by the Security Agent. 

The investment risk is also considered minimal, as funds in the SFA will only be invested in government treasury bills/securities, fixed deposits with licensed financial institutions and private debt securities carrying at least AA ratings.  The refinancing risk is also mitigated with the requirement for a gradual accumulation of funds in the SFA. 

Maxisegar’s pre-tax profit rose by 24% to RM36.49 million in FY00 (FY99: RM29.54 million) following the 180% increase in its progress billings.  Besides the huge increase in progress billings to RM222.2 million (FY99: RM79.4 million), the growth in profit during the year was also attributed to the significantly reduced financing cost.  OPBIT interest coverage benefited from this when the coverage more than doubled to 5.58 times from 2.55 times previously.  Based on the current good take-up rates and competitive pricing strategy for both projects, MARC expects Maxisegar’s present revenue stream to sustain, if not improve, in the near to medium term. 

Similarly, the debt-equity ratio has been improving over the last four years, mainly attributed to higher profit retention and to a lesser extent, the reduction in the absolute size of its debt.  However, the financial profile is weakened by its proforma debt-equity ratio, which is expected to hover around 2.35 times after the issuance of the BaIDS.  A debt-equity cap of 2.50 times has nevertheless been imposed under the issue structure.