Glomac Bhd - 2008

MARC has affirmed the A-ID / MARC-2ID ratings on property developer Glomac Berhad’s (Glomac) RM60 million Junior Bai’Bithaman Ajil Islamic Bonds (Junior BaIDS) and its RM25 million Murabahah Notes Issuance Facility / Islamic Medium Term Notes (MUNIF/IMTN) respectively. Glomac’s RM50 million Senior BaIDS was fully redeemed in January 2006. The ratings reflect Glomac’s established track record as a developer of commercial and residential projects and strong financial profile, moderated by the prevailing weak property market sentiment. The ratings carry a stable outlook.

Listed on Bursa Malaysia since 2000, Glomac has steadily shifted its focus from township development to niche, high-end development as evident in its two major projects - Suria Stonor and Glomac Tower – within the Kuala Lumpur City Centre (KLCC) vicinity. As of April 30, 2008 (FY2008), Glomac recorded unbilled sales of RM856.6 million, of which 60.6% comprised the en bloc sale of its Grade A Office development, Glomac Tower and 20.9% from its recently completed condominium development, Suria Stonor. Although the Suria Stonor development under Glomac Regal Sdn Bhd (Glomac Regal) has achieved a respectable take-up rate of 93.5%, the group will only benefit from the project’s surplus cash flow in 2009 after the redemption of project borrowings at Glomac Regal. In the near- to intermediate-term, the group’s debt servicing capacity will be driven by the performance of its planned project launches valued at approximately RM2 billion involving new phases in existing projects and a new development, Glomac Damansara in Petaling Jaya, Selangor.
  
In FY2008, Glomac reported higher revenue of RM324.3 million, a 10.6% increase over the RM293.3 million reported in FY2007, aided by contributions from Suria Stonor and its Saujana Utama Township. Its operating profit margin decreased to 14.5% in FY2008 (FY2007:16.5%) on account of rising building material costs. Excluding the contributions from its Suria Stonor development, the group’s operating profit margin was lower at 11.4%. Reduced construction activity coupled with near completion of its Plaza Glomac have resulted in the group recording a lower profit before tax of RM25.7 million in the first half ended October 31, 2008 (1HFY2009) (1HFY2008: RM31.4 million) with its operating profit margin retreated to 13.7% from 18.2% in 1HFY2008.

Glomac registered positive net cash flows of RM101.6 million for FY2008. Following the completion of a RM74.1 million capital raising exercise in 4QFY2007 and the disposal of treasury shares totaling RM14.7 million, the debt service cover ratio (DSCR) stood at 2.86 times, comfortably above the minimum covenanted level of 1.5 times. The capital raising exercise and the redemption of RM20.0 million of its Junior BaIDS in January 2008 led to an improvement in the debt-to-equity ratio to 0.80 times (FY2007: 0.99 times), despite a marginal increase in borrowings by RM4.0 million. Further debt repayment in the 1HFY2009 has led to a decline in gearing to 0.61 times which provides Glomac more headroom vis-à-vis its covenanted debt-to-equity cap of 1.5 times. 

The stable outlook reflects MARC’s expectations that Glomac will maintain its business and financial risk profile in the near- to intermediate-term based on the committed sales from its current property developments.

Major Rating Factors

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          Challenges/Risks