Maxisegar Sdn Bhd - 2001

The rating of Maxisegar’s BaIDS reflects a tight underlying issue structure, where the progress billings from secured sales of specific property development projects have been earmarked for the redemption of the BaIDS issue.  Positive features of the issue structure include a security coverage of 1.43 times of the amount of BaIDS outstanding, the maintenance of minimum balances in a Sinking Fund Account (SFA) and a six-month finance service liquidity buffer in a Debt Service Reserve Account  (DSRA).  The rating, is however, moderated by the high proforma debt leverage and the company’s vulnerability to adverse developments in the local property market.

Maxisegar, principally involved in property development, was incorporated in 1983 as a wholly owned subsidiary of Talam Corporation Berhad (Talam).  Under a Privatization Agreement with the Selangor State Government, the company will develop the main campus of Universiti Industri Selangor (Unisel), and as compensation, will be allocated three parcels of land in Sungai Buloh, Bukit Jalil and Batang Berjuntai, collectively measuring 3,911 acres for development. The RM580 million construction cost of Unisel shall be funded by proceeds from the development of two parcels of land located in Sungai Buloh and Bukit Jalil, and a portion of the BaIDS proceeds.

The BaIDS shall be drawndown in three tranches and only upon the assignment of eligible receivables (progress billings) of an amount equivalent to 1.43 times security coverage.  Secured sales under the two parcels of development land represent the main source of repayment of the BaIDS facility.  The projects are well located and are surrounded by established developments, substantially lowering market risk.  In addition, market demand is expected to be sustainable given the large residential component  and the competitive pricing strategy.  Credit risk is mitigated with the requirement that at  least  50% and 80% of  the eligible receivables would have secured end-financing facilities from financial institutions or government loans by the third and sixth month respectively from the date of the drawdown of each tranche.

The risk that the project may not be completed is mitigated by having the Security Agent act as joint signatory over the Project Account which captures the BaIDS proceeds to part finance the development.  Refinancing risk arising from the redemption of the BaIDS is mitigated by the serial structure of the bonds and the requirement to maintain a minimum credit balance in the SFA.  Withdrawal of excess funds is only allowed upon Maxisegar meeting specific conditions.   The maintenance of an amount equivalent to one Secondary Note payment in the DSRA at all times acts as additional liquidity buffer.

Turnover declined by 25% to RM170.2 million for FYE 31 January 2001 as a result of delays in the final progress billings of completed properties.  This had also resulted in the operating profit margin contracting to 13% from 16% the previous year.  OPBIT interest coverage nevertheless improved to 7.4 times in FYE 2001 attributed to the significant decline in interest payments following the company’s debt reduction exercise. 

Maxisegar’s debt-equity ratio has consistently improved over the last five years settling at 0.42 times as at FYE 2001, attributed to profit retention coupled with debt reduction.  Upon the issuance of the RM600 million BaIDS, Maxisegar’s pro-forma debt-equity ratio will weaken to 5.79 times.  A debt-equity cap of 6.50 times has been imposed under the issue structure. 

The liquidity position is satisfactory, with development properties accounting for 40% of total current assets.  MARC believes that future liquidity is manageable given the good asset turnover of its properties.  However, our stress analysis indicates that the company’s cash flow is sensitive to delays in billing collections and reductions in take up rates, which is somewhat mitigated by the structure’s stringent criteria for eligible receivables.