Horizon Hills Development Sdn Bhd - 2008

MARC has affirmed the AAAID(bg) and MARC-1ID(s) ratings on property developer, Horizon Hills Development Sdn Bhd’s (Horizon Hills) (formerly known as Arapesona Development Sdn Bhd) Islamic Bank Guaranteed Medium-Term Notes (IMTN) Programme of up to RM200 million and Islamic Commercial Papers (ICP) Programme of up to RM70 million respectively. The ratings carry a stable outlook.

The affirmed long-term rating of AAAID(bg) for the Programme carries MARC’s public information rating on Public Bank Berhad (PBB), which has provided an unconditional and irrevocable guarantee covering obligations under the IMTN. The AAAID(bg) rating reflects the bank’s solid asset quality, robust capitalisation, strong sustainable earnings performance and sound management. MARC believes that PBB’s conservative policies and superior asset quality will position the bank to maintain strong core profitability despite the slowing domestic economy. The short-term rating of MARC-1ID(s) on the ICP reflects the credit strength of Horizon Hills’s shareholders, UEM Land Bhd (UEM Land) and Gamuda Bhd (Gamuda), which have provided unconditional and irrevocable undertakings in proportion to the size of their shareholdings in Horizon Hills to meet any financial obligation under the rated debt of up to RM280 million and any cash flow deficit in the Horizon Hills project and in respect of financial covenants pertaining to the rated notes of up to RM30.0 million. MARC’s short-term public information corporate credit ratings on UEM Land and Gamuda have been affirmed at MARC-1 respectively.

Horizon Hills is a 50:50 joint-venture company formed between UEM Land and Gamuda to undertake the Horizon Hills Project consisting of a 1,228-acre mixed-development with an 18-hole golf course in the fast-growing Nusajaya township, an integral component of the government-initiated Iskandar Malaysia development in southern Johor. MARC views shareholder support for the company as strong as both shareholders have committed to maintain their present shareholdings in the company over the tenure of the Programme in addition to the unconditional and irrevocable undertakings given in respect of the ICP.

UEM Land is the property development arm of UEM Group Berhad (UEM Group), a 100%-owned subsidiary of UEM Land Holdings Berhad, which in turn, is 77%-owned by UEM Group and ultimately, 100%-owned  by Khazanah  Nasional  Berhad, the  government’s  investment  holding arm. To date, the

total  Gross Development Value (GDV)  of  UEM Land’s on-going  projects stands  at  RM5.14 billion, with
future projects in the near- to intermediate-term expected to provide an additional GDV of RM2.53 billion. UEM Land’s government-related entity status is viewed as the key driver for the maintenance of its short-term rating.
 
Gamuda, a leading contractor in Malaysia with an established track record in its core businesses, namely engineering and construction (E&C), infrastructure and water concessions and township development. For the year ended July 31, 2008 (FY2008), Gamuda’s revenue and pre-tax profit improved to RM2.40 billion and RM470.8 million respectively against RM1.52 billion and RM276.6 million in FY2007, largely due to higher contributions from its E&C, property division and water and expressway concessions division. The E&C division is expected to remain the group’s main revenue contributor with an outstanding order book of RM9.5 billion while its township development’s total GDV stands at RM11.8 billion. Gamuda’s infrastructure and water concessions continue to provide diversification to Gamuda’s earnings and cash flow profile via a steady stream of dividend income.

The RM2.2 billion Horizon Hills development is expected to span over a period of 12 – 15 years. Horizon Hills has launched 791 units of properties with total sales to date amounting to RM232.9 million, reflecting an average take-up rate of 61% as at June 30, 2008. In the near-term, Horizon Hills will continue to launch properties with an estimated GDV of RM289.4 million, subject to market conditions. Horizon Hills reported a revenue of RM55.5 million for half-year ended June 30, 2008, a marked improvement over its FY2007 full year figure of RM26.0 million. MARC believes that it will be challenging for Horizon Hills to sustain earnings at recent levels in light of weaker demand conditions which are likely to prevail for much of 2009, coupled with stiff competition from neighbouring developments and the slow take-off of development in Iskandar Malaysia.

The stable outlook for the AAAID(bg) and MARC-1ID(s) ratings reflects the outlooks for MARC’s public information ratings on UEM Land, Gamuda and PBB.

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