Putrajaya Holdings Sdn Bhd - 2008

MARC has assigned a rating of AAAIS for Putrajaya Holdings Sdn Bhd’s (PjH) up to RM1.5 billion Nominal Value Sukuk Musyarakah Medium Term Notes Programme. The rating carries a stable outlook. The proceeds of the sukuk will be used mainly for Syariah compliant general working capital requirements of PjH, and to pay the balance of contract works in Parcel E subject to a ceiling of RM35 million. Sukukholders will invest in the trust asset comprising PjH’s rights, entitlements and benefits under a sub-lease agreement with the Government of Malaysia (GOM) in relation to 15 blocks of government buildings referred to as Parcel E. PjH will lease the buildings for a period corresponding to the 24-year duration of the sukuk programme and not later than the last expiry date of the sub-lease agreements forming the trust asset. The lease payments from the GOM to PjH will cover the return on the sukuk and principal repayment of the sukuk on the scheduled dissolution date of the respective musyarakah ventures. PjH is obliged to cover shortfalls between the returns payable to sukukholders and rental payments from the GOM. PjH has provided a purchase undertaking to purchase the sukuk from the trustee upon occurrence of a scheduled dissolution or dissolution event.

The AAAIS rating reflects the contractual lease rentals payable by the GOM in respect of Parcel E, and PjH’s senior unsecured debt rating of AAA which is underpinned by PjH’s strong earnings and cash flow generating ability as well as superior financial flexibility derived from its majority ownership by Petroliam Nasional Berhad (Petronas) through KLCC (Holdings) Sdn Bhd and Khazanah Nasional Berhad, considerable unutilized standby credit lines and healthy cash and bank balances.

PjH is the concessionaire and developer of Putrajaya, Malaysia’s Federal Administrative Capital. Under a concession agreement and supplemental concession agreement with the GOM, PjH has a contractual obligation to construct government buildings in return for a 25-year lease of the buildings and land. The buildings and land are sub-leased to the GOM upon completion for a corresponding 25-year period for specified rental income streams with provisions for upward revision of rental. Total rental income for Parcel E of RM2,788 million over the 24-year period from 2008 through 2032 is expected to adequately cover total principal repayments of RM2,100 million as well as projected coupon payments of RM637 million. Construction risk with respect to Parcel E has been eliminated with the buildings having been fully completed as of May 2007 with the issuance of the last certificate of practical completion for the final and fifth sub-parcel. Maintenance of the buildings will be undertaken and borne entirely by the GOM.

PjH recorded revenue growth of 34.5% to RM1,975 million in FY2007 (RM1,468 million in FY2006) following the execution of sub-lease agreements for Precinct 4G3, and the first full year of contributions from Parcel E and Precinct 4G4. Consequently, PjH’s operating profit margin increased significantly to 51.0% from 39.9 % in FY2006. Its debt leverage ratio improved to 2.15 times as at end-March 2007, well below the gearing cap of 4.0 times. This was despite further draw downs amounting to RM1,205 million from its RM2,200 million MMTN and RM1,500 million CP/MTN (Government Quarters) facilities. PjH’s RM910 million MCP/MTNs for Parcel E were fully redeemed in August 2006 and terminated.

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 Bhd.