Diversified Venue Sdn Bhd - 2008 / 2009

MARC has affirmed its AAIS rating on Diversified Venue Sdn Bhd’s (DVSB) RM200 million Sukuk Al-Ijarah Master Programme (Sukuk). The rating outlook is stable. DVSB, a funding special purpose vehicle wholly-owned by First Impact Sdn Bhd (FISB), acquired a beneficial ownership in the land and building for the construction of Mercu UEM, UEM Group Corporate Headquarters from FISB via the Sukuk proceeds and leased it back to FISB for a period corresponding to the tenure of the Sukuk. The affirmed rating reflects the credit strength of UEM, the intermediate holding company of DVSB, and as the liquidity support provider for the sale-and-leaseback transaction. UEM has also undertaken to repurchase the assets upon dissolution of the Sukuk. UEM’s public information senior unsecured rating of AA, reflects its diversified business profile, strong profitability and liquidity as well as its strong ultimate shareholder, Khazanah, the government’s investment arm. These strengths are moderated by the challenging prospects for UEM’s core businesses of engineering and construction, property and cement manufacturing amid weaker demand.                  

Located on a 1.14-acre site in the commercial hub of KL Sentral, Kuala Lumpur, the 29-storey Mercu UEM has a net floor area of approximately 300,000 sq ft. The building is now completed with full operation began on January 2, 2009. The temporary certificate of fitness was obtained on November 25, 2008.

Repayment of the Sukuk will be funded by periodic lease payments made by FISB under the Sukuk as well as proceeds from the repurchase of the underlying assets by UEM. Additionally, UEM has undertaken to support FISB in meeting its Sukuk service obligations through a Liquidity Facility Agreement. FISB will be responsible for all costs and expenses relating to the building and will remain as the legal owner. FISB continues to fulfill its lease payment obligations promptly enabling DVSB to meet its quarterly profit payments.

In 2008, UEM, had undergone a restructuring exercise initiated by its previous subsidiary, UEM World Berhad (UEM World), as announced by UEM World on 15 February 2008 (Restructuring Exercise), which entailed the delisting and cessation of operations of UEM World, and the listing of a 77%-owned subsidiary, UEM Land Holdings Berhad (UEMLH) on the Main Board of Bursa Malaysia in November 2008.

UEMLH is the flagship company for the group’s real estate investment and property development  businesses in Nusajaya, one of the five flagship zones of Iskandar Malaysia. Following the Restructuring Exercise, several listed entities within the group were privatised; namely Cement Industries of Malaysia Berhad, Opus Group Berhad and UEM Builders Berhad.

In addition to UEMLH and the above privatized entities, UEM holds 87% and 40% interest in Pharmaniaga Berhad and PLUS Expressways Berhad, and substantial stakes in other listed companies namely, Faber Group Berhad and Time Engineering Berhad. UEM derives a significant amount of dividend income from its investments.

For the financial year ended December 31, 2007 (FY2007), UEM group’s results continued on an uptrend with revenue and pre-tax profit increasing by 12.5% and 18.2% to RM7.9 billion and RM1.6 billion respectively (excluding exceptional items from land sale to Khazanah as part of the de-gearing exercise of UEM Land Berhad and the listing of a foreign subsidiary in New Zealand). Group operating profit margins remained stable at 28.8% (FY2006: 30.9%). The de-gearing exercise has also resulted in improved cash flow protection and debt leverage measures for the group. The group’s net cash position and debt-to-equity ratio stood at RM583.3 million (FY2006: RM316.9) and 0.99 times (FY2006: 1.09 times) respectively.

The stable rating outlook reflects MARC’s expectations that UEM will maintain a credit profile consistent with its rating level over the medium term. 

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