Putrajaya Holdings Sdn Bhd - 2008

MARC has affirmed its AAAID /MARC-1ID ratings on Putrajaya Holdings Sdn Bhd’s (PJH) Islamic debt issuances, as follows:-

   • 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 (MUNIF) Facility (due 2015)
   • RM2.2 billion Murabahah Medium Term Notes (MMTN) Programme (due 2021) 
   • RM1.5 billion Murabahah CP/MTN Programme (due 2013)

The ratings carry a stable outlook. The ratings reflect PJH’s strong business and financial profile, underpinned by stable and consistent rental collections from its sub-lessee, the Government of Malaysia (GOM). The ratings also incorporate the significant financial flexibility afforded by its ultimate holding company, government-owned oil and gas conglomerate, Petroliam Nasional Berhad and its shareholder, the government’s investment holding arm, Khazanah Nasional Berhad. The stable outlook is premised on MARC’s expectation that PJH will continue to maintain its strong credit quality based on contributions from sub-lease rentals under a 25 year concession.

PJH is the concessionaire and developer of Putrajaya, the federal administrative centre of Malaysia. Under a Concession and Supplemental agreement entered into between PJH and GOM, PJH is responsible to construct and develop government buildings. Upon the delivery of these buildings, PJH is granted a 25-year lease for the land. Thereafter, PJH will sub-lease the land and building back to the government for a matching period of 25 years for specified rental streams. Based on 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. For the construction of government quarters under the Design and Build agreement, PJH will progressively bill the government based on the construction stages of the project.

The BBA Bonds are secured by assignments of sub-lease payments by the 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 solely utilised for servicing primary and secondary bonds. The progressive redemption of the bonds over the tenure of the facilities significantly mitigates refinancing risk. The other issuances (which do not have the benefit of rental assignments) namely the RM2.2 billion MMTN and RM1.5 billion MUNIF, are supported by a negative pledge on the respective government buildings while the RM1.5 billion Murabahah CP/MTN by government quarters.
 
For the financial year ended 31 March 2008 (FY2008), PJH reported a revenue of RM1,965.9 million, a marginal reduction year-on-year (FY2007: RM1,975.4 million) due to contractual rental adjustments in Phase II of completed government buildings. PJH continued to maintain strong operating profit margins of 47.1% for FY2008 (FY2007: 51%) which translated into an after-tax profit of RM465.4 million. PJH continued to pare down its borrowings by repaying RM600 million in FY2008, resulting in an improved gearing of 1.64 times (FY2007: 2.15 times), well below its covenanted debt-equity cap of 4.0 times. Cash flow from operations (CFO) remained high at RM709.9 million in FY2008, albeit lower than the RM1,317.9 million in FY2007. Despite the lower CFO which was primarily due to lower progress billing receipts from the construction of government quarters, debt coverage ratios improved year-on-year following sizeable debt repayment.

For the three months ended 30 June 2008 (1Q2009), PJH posted a pre-tax profit and revenue of RM84.9 million (1Q2008: RM156.3 million) and RM367.9 million (1Q2008: RM450.4 million), respectively. This decrease in revenue continued to reflect lower progress billings from government quarters’ construction. The group’s debt leverage which showed further improvement to 1.56 times, could potentially increase upon the full drawdown of the latest RM1.5 billion Sukuk issuance programme. As at June 30, 2008, PJH’s ample liquidity and financial flexibility was evidenced by undrawn credit lines amounting to RM730 million, and, cash and cash equivalents totalling RM627 million.

Major Rating Factors

          Strengths 

• Strong sub-lessee in the Malaysian Government; and
• Strong shareholders in PETRONAS and Khazanah Nasional Berhad.