Land & General Berhad - 2007

MARC has upgraded Land & General Berhad’s (L&G) Redeemable Convertible Secured Loan Stocks (RCSLS) of up to RM320,962,637 to B from B-. The outlook for the rating is Developing. The upgrade reflects the Group’s improved credit profile and liquidity position which is mainly attributed to significant debt reduction during the past year. Using proceeds from asset sales under its ongoing asset disposal programme, coupled with the waiver of certain balances, L&G has reduced its outstanding RCSLS by approximately RM177.50 million. The developing outlook reflects potential for improvement in L&G’s operational capacity on a more sustained basis with the recent substantial change in L&G’s shareholdings, i.e in light of Mayland Parkview Sdn Bhd emerging as the single largest shareholder of L&G.

Further repayments of RCSLS will be facilitated by using proceeds from sales of remaining assets under the Asset Disposal Programme. The total outstanding nominal value of RCSLS stands at RM143.46 million. The estimated divestment value of the remaining assets under the Asset Disposal Programme which amounted to RM108.19 million as at October 2007, provides an estimated security coverage ratio of 0.75 times. L&G may potentially realise higher gross proceeds from the asset disposal as certain assets have been conservatively valued. Recovery prospects also depend on the operating performance of L&G’s remaining core business of property development to the extent that any shortfall in asset sales will have to be met by L&G from its operating cash flow.

As part of the debt restructuring scheme, the Group has hived off its non-core businesses to focus on property development. The Group launched a new project known as D’sara Villa in Bandar Sri Damansara in February 2006, comprising 24 bungalow lots. As at June 2007, the project was fully sold. The Group’s Bandar Sungai Buaya residential development has not recorded significant progress over the year under review. 

The Group recorded a fall in revenue by 66% to RM96.09 million in FY2007 as compared to RM283.49 million in FY2006, as a result of reduced property development activity and a decline in rental income following the disposal of Plaza Putra in FY2006. Additionally, gains on asset disposals had significantly contributed to FY2006 results. The Group’s debt leverage ratio improved to 0.15 times as compared to 0.78 times in FY2006 due to debt repayments.

L&G’s current financial profile and prospective near-term operating performance are consistent with the current rating. The company remains vulnerable to a variety of risks, principally its ability to realise sufficient proceeds from asset sales within the expected time frame and generating operating cash flow from its remaining core business of property development. L&G’s diminished financial flexibility as a company in the midst of a debt restructuring programme, heightens overall financial risk. Any further rating improvement depends on the outcome of further asset disposals and/or further recovery in L&G’s business and financial profile. MARC will revise the rating outlook once the credit implications of L&G’s new ownership become clearer.

Major Rating Factors

Strengths

• Significant debt reduction through proceeds of asset sales.

Challenges/Risks

• Realising sufficient proceeds from timely asset sales; and
• Turning around its remaining core business of property development.