Maxisegar Sdn Bhd - 2002

The rating affirmation of Maxisegar Sdn Bhd‘s (Maxisegar) RM300 million Al-Bai Bithaman Ajil Islamic Debt Securities (BaIDS) is supported by 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 the Sinking Fund Account (SFA) and a six-month debt service liquidity buffer in the Debt Service Reserve Account (DSRA). These factors are, however, tempered by Maxisegar’s high 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. Some of the on-going developments undertaken by Maxisegar include the 796-acre Bukit Jalil project, Bukit Sentosa III project located in Serendah and the Danau Putra project in Puchong. The developer of the Danau Putra project, Cekap Mesra Development Sdn Bhd (CMSB), previously a subsidiary of Talam, has been divested to Maxisegar under an internal group restructuring exercise.

The RM300 million BaIDS issue is backed by RM384 million of secured sales from the Danau Putra and Bukit Sentosa III projects. Sales performance achieved to date has been impressive with take-up rates of 100% and 88% respectively, of gross development value launched.  This was attributable to the company’s aggressive marketing strategies and the affordable pricing of its units.  As at 28 March 2002, total amount billed for both projects stood at RM727.1 million, with remaining billings of RM346.6 million (including the uncollected portion of amount billed of RM130.5 million). This has substantially mitigated market risk, hence providing adequate security coverage to bondholders.  Market demand is expected to be sustainable given the large affordable residential component of the respective development.

Credit risk is spread over a large number of purchasers with about 96% and 83% of the units sold for the Danau Putra and Bukit Sentosa III projects respectively having secured end-financing facilities from either financial institutions or the Government.  The risk of timely completion of the property units that form the security is mitigated through the control of the project’s operating accounts by the Security Agent. 

Liquidity and refinancing risks have been manageable so far with scheduled amounts being maintained in the SFA and DSRA.  As at 2 April 2002, balances in the SFA and DSRA amounted to RM112 million and RM10.5 million respectively, above the minimum required balance under the issue structure.  The investment risk is also minimal as funds in the SFA can only be invested in selected liquid investments with strong credit ratings.

Maxisegar’s turnover surged by 77% to RM486.2 million in FY2002, following higher demand for its properties.  However, due to the larger component of low-cost housing development coupled with delays in a few of its property launches, the profit margin contracted to 4.8% from 10.9% previously.  The lower OPBIT and hefty increase in interest payment on the back of the issuance of Islamic debt securities resulted in a steep fall in OPBIT interest coverage to 0.59 times from 3.15 times in the previous corresponding period.

The debt-equity ratio weakened to 3.57 times as at FY2002 after the issuance of another RM420 million BaIDS during the year.  The initial gearing cap of 2.50 times imposed under the issue structure of the RM300 million BaIDS has been revised to 6.50 times after accounting for the RM600 million BaIDS facility. Maxisegar’s operating cash flow was in deficit in FY2002 as a result of significantly higher development expenditure.  This was somewhat offset by the strong current ratio of 2.31 times.  Based on the current favourable response for Maxisegar’s developments, the Bukit Jalil project in particular, MARC expects Maxisegar’s revenue stream to sustain, if not improve, in the near to medium term.