MK Land Holdings Bhd - 2008 / 2009

MARC continues to maintain MK Land Holdings Bhd’s (MK Land) BBB+ rated RM60.0 million outstanding bonds on MARCWatch Negative. The company was first placed on MARCWatch Negative on May 7, 2008 due to liquidity concerns following the deferment of scheduled payments to build up its sinking fund account. MK Land has since met the timeline to place RM30.0 million into the sinking fund account before August 25, 2008 and Tranche 1 bonds has been fully repaid. Since MARC’s last update of MK Land’s MARCWatch status on December 5, 2008, MK Land’s liquidity position has remained strained despite moderate improvement in profitability measures for the six months ending December 31, 2008 (1HFY2009).

For 1HFY2009, MK Land recorded a pre-tax profit of RM18.2 million, a significant turnaround from a pre-tax loss of RM16.8 million in 1HFY2008 mainly due to improved sales of development properties. However, it registered negative net cash from operations of RM2.3 million and its cash and bank balances and deposits with licensed banks remained modest at RM29.0 million relative to short-term borrowings of RM300.2 million which includes the outstanding bonds and RM137.9 million of bank overdrafts.

To address its upcoming final redemption of the rated bonds in September 2009 of RM60.0 million, MK Land had announced on January 20, 2009 the disposal of 23 acres of commercial land located in Damansara Perdana in Petaling Jaya, Selangor to Ketara Megah Development Sdn Bhd (Ketara Megah), a company owned by Tan Sri Datuk Hj Mustapha Kamal, the executive director and a major shareholder of MK Land. The RM150.0 million purchase consideration for the disposal of the land will be settled over a total of five instalments.

Between January and March 2009, MK Land received the first, second and third instalments amounting to RM60.0 million collectively from Ketara Megah. MK Land has indicated that the fourth instalment of RM60.0 million will be received in May 2009 ahead of its June 2009 sinking fund requirement which has to be met three months prior to the final redemption of the bonds in September 2009. MARC will be monitoring the collection of scheduled instalments closely and will take appropriate rating action in the event of failure or delay in meeting the payments.

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