Land & General Bhd - 2008

MARC has affirmed the rating of Land & General Berhad’s (L&G) Redeemable Convertible Secured Loan Stocks (RCSLS) of up to RM320,962,637 at B. The rating carries a stable outlook. The affirmed rating reflects the satisfactory progress made in its ongoing Asset Disposal Programme (ADP), a critical component of a debt restructuring scheme agreed upon in 2003. The ADP is principally providing the funds to service its RCSLS-related debt service obligations. The rating on the RCSLS continues to be constrained by the risk that proceeds from asset sales may be insufficient and/or that disposals may not occur on a timely basis to meet L&G’s RCSLS obligations. Additionally, projected contributions from its property development business may be lower than anticipated.

L&G has remained largely dormant apart from a few insignificant on-going businesses, despite the entrance of property developer, Mayland Parkview Sdn Bhd, as the single largest shareholder since November 2007. The group is now focused on its remaining few property projects. While subsidiary Bandar Sungai Buaya Sdn Bhd, the developer of Bandar Sungai Buaya, was wound-up by creditors in July this year, its D’sara Villa project in Bandar Sri Damansara in Petaling Jaya, Selangor has achieved a take-up rate of 79% to date for its 24 bungalow lot offering.

Revenue for the group in the near term will continue to be derived from the ADP, with minimal contribution from its property development operations. In FY2008, the group’s revenue dipped significantly by 61% to RM37.6 million year-on-year (FY2007: RM96.1 million); its operating margin rose to 38.6% (FY2007: 34.4%) on the back of a gain on disposal of a jointly-controlled entity. The on-going asset disposal has resulted in a significant reduction in the group’s debt-to-equity ratio to 0.69 times from 1.30 times in FY2007.

As of August 12, 2008, the group has redeemed a total of RM249.25 million nominal value of RCSLS, of which RM12.02 million was redeemed in advance, leaving an outstanding nominal amount of RM71.71 million or 22.3% of the initial issue size. MARC notes that the estimated divestment value of the remaining assets of RM89.71 million provides a security coverage ratio of about 1.25 times against the outstanding nominal value of RCSLS. Recovery prospects will depend on the operating performance of L&G’s remaining businesses to the extent that any shortfall in asset sales will have to be met by L&G’s operating cash flow.

The stable outlook for the rating is predicated on the expectation that L&G will continue to demonstrate satisfactory progress in its ADP. Positive rating momentum could arise if the outcome of further asset disposals proves to be more favourable than anticipated and/or L&G’s business and financial profile shows material improvement.

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