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MARC has affirmed its BB- rating of Olympia Industries Berhad’s (OIB) outstanding RM85,860,360 nominal value Redeemable Unsecured Loan Stocks (RULS). The rating outlook is stable. The affirmed rating incorporates OIB’s improved credit profile following the completion of its debt restructuring exercise. Since MARC’s previous rating action, OIB has regularised its financial position. The company is expected to sustain a financial profile that is consistent with its rating level, despite the slow-down in take-up rates in property market and some correction in property prices.
OIB is an investment holding company with its subsidiaries engaged in property development, stockbroking, construction, travel agency and lotteries/number forecast. FY2007 saw a turnaround in OIB group’s financial performance following the completion of a group-wide restructuring scheme. Interest writebacks post-restructuring saw the group record a pre-tax operating profit of RM568.0 million and an operating profit of RM0.7 million excluding the one-off gain from writebacks (FY2006: operating loss of RM45.0 million). The group had previously registered operating losses since 1998. For the financial year ended June 30, 2008 (FY2008), the group recorded a 22.7% increase in turnover to RM397.9 million compared to FY2007 and an operating profit of RM101.9 million mainly contributed by its well-received K-Residence (Tower A) development and continuous growth from its gaming and leisure division. OIB’s debt protection measures, particularly its interest coverage and debt to equity ratio have improved as a result of the conversion of debts into equity post-restructuring. Going forward, cashflows generated by its Kenny Height Developments project (KHD project), gaming business and rental income from Menara Olympia are expected to be primary source of repayment for the RULS. The RULS was reduced to RM85.9 million subsequent to the redemption and cancellation of RM51.3 million RULS on September 25, 2008.
KHD project, a mixed development project within the vicinity of Mont Kiara/Sri Hartamas, is currently undertaken as a 42:58 joint-venture project with DutaLand Berhad (formerly known as Mycom Berhad). The planned development of KHD project carries an estimated gross development value (GDV) of RM7.7 billion, of which Parcel 2 launched on April 22, 2008 has registered total sales value of RM128.7 million with a 61% take-up rate as of September 30, 2008. The prevailing soft market conditions pose challenges and downside risks to planned launches.
The stable outlook reflects MARC’s expectations that OIB will maintain its business and financial risk profile in the near to intermediate term aided by its leisure and property development division for which demand and profitability is more predictable. A moderation in sales momentum for its upcoming property launches could, however, result in a revision of the stable rating outlook.
Major Rating Factors Strengths Improved credit profile following the completion of its debt restructuring exercise; Good location of its property development projects in the upscale Mont Kiara/Sri Hartamas vicinity; and Stable income stream from its gaming operations in Sabah.
Challenges/Risks
- Weak outlook for property development sector.
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