Sime Darby Property Bhd - 2009

MARC has issued this rating update in connection with Sime Darby Property Berhad’s (SDPB) (formerly known as Guthrie Property Development Holding Berhad) proposed early redemption of the outstanding Islamic Medium Term Notes Programme (IMTN) totalling RM100 million which matures in March 2011. SDPB is currently seeking bondholders’ approval for the proposed early redemption and subsequent cancellation of the facility.

Since end-2007, the company has had a change of name from Guthrie Property Development Holding Berhad to Sime Darby Property Berhad and is now a wholly-owned subsidiary of Sime Darby Berhad. Post-merger integration of the property arms of the former Golden Hope Plantations Berhad, Kumpulan Guthrie Berhad and Kumpulan Sime Darby Berhad under SDPB have resulted in the latter becoming the largest landbank owner in the country among domestic property developers. SDPB’s stand-alone creditworthiness remains strong, underpinned by respectable take-up rates for most of its projects, good track record for timely completion, sizeable land bank and a strong financial profile, moderated by the weak near-term outlook for property demand.

Post-merger, SDPB group has become a diversified property player with interests in property development, asset management and hospitality and leisure businesses. SDPB group currently has a land bank totalling 37,000-acres throughout Malaysia, of which 8,720 acres is available for development. Of this available land, 3,874 acres is strategically located in the Klang Valley and Selangor. As of June 30, 2008, SDPB group recorded total sales of RM7.2 billion with future expected billings from contracted sales and average take-up rates standing at RM765 million and 90% respectively. Its flagship development, Bukit Jelutong in Shah Alam has been a significant contributor to its performance. SDPB group’s projected launches in the near term carry a total gross development value (GDV) of RM2.3 billion.

For the 18-month period ended June 30, 2008 (FY2008), the company recorded a revenue of RM956.5 million boosted by higher property sales from Bukit Jelutong and Denai Alam, also in Shah Alam, as well as dividend receipts of RM374.1 million from operating subsidiaries, which resulted in higher operating profit margin of 51.3%. The company’s net cash from operations registered a net cash outflow of RM997.3 million in FY2008 mainly attributable to the acquisition of subsidiaries and associates of RM1.1 billion following the merger exercise. The shortfall was financed by intercompany borrowings, in particular a loan from the holding company, Sime Darby Berhad of RM2.1 billion.

SDPB’s debt-to-equity (DE) ratio at company’s level with the inclusion of amount due to holding company of RM2.1 billion stood at 0.16 times as of FY2008. The IMTN facility remains the only external borrowing for the group, post-merger. Following the redemption of RM300 million IMTN facility in March 19, 2009, SDPB’s DE ratio improved to 0.04 times on a pro-forma basis from FY2008, leaving an outstanding balance of RM100 million. The RM325.0 million cash and bank balances  as of June 30, 2008 provide ample liquidity while its considerable unencumbered assets in the form of landbank and investment properties, potential financial assistance from its parent lends further support to SDPB’s financial flexibility.

MARC expects to withdraw its last assigned rating of AA-ID on SDPB’s IMTN upon confirmation from the Trustee or Facility Agent that the facility has been redeemed and cancelled.