Putrajaya Holdings Sdn Bhd - 2007

MARC has reaffirmed its AAAID /MARC-1ID ratings on Putrajaya Holdings Sdn Bhd’s (PJH) Islamic debt issuances.

The facilities affected by this rating action are:

• RM765 million Bai Bithaman Ajil (BBA) Bonds Issuance Facility (due 2010)
• RM570 million BBA Bonds Issuance Facility (due 2013)
• RM850 million BBA Bonds Issuance Facility (due 2013)
• RM850 million BBA Serial Bonds Issuance Facility (due 2015)
• RM1.5 billion Murabahah Notes Issuance Facility (due 2015)
• RM2.2 billion Murabahah Medium Term Notes (MMTN) Programme (due 2021) 
• RM1.5 billion Murabahah CP/MTN (due 2013)

The rating outlook is stable. PJH is the concessionaire and developer of Putrajaya, the federal administrative centre of Malaysia. The ratings reaffirmation reflects PJH’s strong financial profile and the robust cash flows afforded by stable and predictable rental collections from its sub-lessee, The Government of Malaysia (GOM). In addition, PJH derives strong financial flexibility drawn from its ownership by PETRONAS and Khazanah Nasional Berhad.

Under a Concession and Supplemental agreement entered into with the GOM, PJH is to construct Government Buildings on a privatized basis over two phases. Upon completion of these buildings, the Government will grant PJH a 25-year lease for the land. PJH will simultaneously sub-lease the land and buildings back to the Government for a matching period of 25 years in return for specified rental streams. Maintenance of the buildings will be undertaken and borne entirely by the Government. Under the sub-lease agreements, the rental rates will be revised upwards at an annual compounded rate of 3.0% every three years for a specified period and thereafter at a flat rate. PJH will bill the Government progressively for the construction of the Government Quarters.

The BBA Bonds are secured by an assignment of sub-lease payments by Government for the Government buildings under Parcels A, B, Public Facilities Precinct 10; Parcels C & D and Parcels Wisma Putra, the Deputy Prime Minister’s Residence and the Ministry of Finance. The sub-lease rental income streams captured in designated accounts will be used solely to service primary and secondary bonds. The progressive redemption of the bonds over the tenure of the Facilities significantly mitigates refinancing risk.

Apart from the BBA Bonds, the other issues are unsecured although the RM2.2 billion MMTN issuance will benefit from the future assignment of sub-lease payments from Parcels A, B, C, D and public facilities in Precinct 10 commencing in 2011 after the BBA Bonds have been fully redeemed.

In FY2007, PJH registered revenue growth of 34.5% to RM1,975.4 million (2006: RM1,468.5 million) mainly due to the execution of the lease and sub-lease agreements for Precinct 4G3, first full year revenue recognition from government office buildings in Parcel E (SP1 [Block E6, E10 & E11], SP2 to SP4) and Precinct 4G4, and recognition of long term rental receivables amounting to RM151.8 million as a consequence of its corresponding straight line income recognition policy in respect of government buildings. The jump in operating profit margin from 39.9% in FY2006 to 51.0% in FY2007 was on the back of higher revenue generated during the year under review.

During FY2007, PJH drew down RM1,205 million from its RM2,200 million Murabahah MTN programme and RM1,500 million Murabahah CP/MTN programme and made principal repayments amounting to RM885 million for its Islamic debt securities and RM350 million for its term loan. Of the RM885 million repayment of its Islamic debt securities, RM685 million was in respect of its RM910 million Murabahah MTN which was fully redeemed in August 2006. PJH’s gearing level improved to 2.15 times as at April 2007 compared to 2.55 times a year earlier on the back of RM69 million decline in total borrowings and a RM489 million increase in shareholders’ funds.

For the first three months ended 30 June 2007 (1Q2008), PJH recorded a revenue of RM450.4 million  on the back of higher progress billings and rental collections in respect of the government buildings. Profit before tax rose to RM156.3 million compared to RM86.8 million for 1Q2007. As at 30 June 2007, the Group’s debt leverage ratio reduced further to 1.74 times but is expected to increase to 2.18 times with its proposed RM1.5 billion Sukuk issuance. PJH has ample headroom for additional debt vis-à-vis its gearing limitation of 4.0 times.

Major Rating Factors

Strengths

• Robust cash flows from rental collections;
• Strong sub-lessee in the Malaysian Government; and
• Strong shareholders in PETRONAS and Khazanah Nasional Berhad.