Horizon Hills Development Sdn Bhd - 2009

MARC has affirmed its ratings on Horizon Hills Development Sdn Bhd’s (Horizon Hills) Islamic Bank Guaranteed Medium-Term Notes (IMTN) Programme of up to RM200 million and Islamic Commercial Papers (ICP) Programme of up to RM70 million at AAAID(bg) and MARC-1ID(s) respectively. The ratings carry a stable outlook. The IMTN benefits from an unconditional and irrevocable guarantee by Public Bank Berhad (PBB), which carries MARC’s public information rating of AAA premised on the bank’s well established domestic market position with about 13% of commercial banking sector assets, its strong asset quality, its resilient recurring earnings and its sound capitalisation.

The affirmed short-term rating of MARC-1 for the ICP programme reflects MARC’s public information corporate credit ratings on Gamuda Bhd (Gamuda) and corporate credit rating of UEM Land Bhd (UEM Land), both of which jointly own Horizon Hills. Gamuda and UEM Land have provided unconditional and irrevocable undertakings in proportion to the size of their shareholdings to meet any financial obligation under the rated debt of up to RM280 million. Additionally, both shareholders have committed to provide equity contributions of up to RM30 million collectively to fund any cash flow deficit of the Horizon Hills project and/or to meet financial covenants under the rated facilities. The stable rating outlook incorporates the outlooks for UEM Land, Gamuda and PBB.

Horizon Hills is a 1,228-acre mixed residential project in the 23,875 acres Nusajaya, which is located within Malaysia’s Iskandar economic zone. Horizon Hills was launched in 2007 with an estimated gross development value (GDV) of RM3.42 billion. Consisting of 12 gated-and-guarded precincts, strong security features, an 18-hole golf course and a clubhouse, Horizon Hills targets the middle- to high-end market segment, with prices per unit beginning from RM350,000 onwards. It has achieved an average take-up rate of 77% for its launched phases as of July 31, 2009, with future expected billings from contracted sales (unbilled sales) standing at RM117.9 million, with sales supported by fairly strong expatriate demand.
 
For financial year ended December 31, 2008 (FY2008), Horizon Hills reported a sharp increase in revenue to RM126.2 million (FY2007: RM26.1 million) with profit before tax rising to RM13.9 million in FY2008 (FY2007: -RM5.1 million). The group’s operating cash flow continued to remain negative, albeit at a reduced level of -RM53.6 million (FY2007: -RM75.2 million) arising mainly from higher property development cost and high receivables. Its debt-to-equity ratio rose 2.29 times in FY2008 (FY2007: 1.93 times), due to an increase of RM110 million in total borrowings.

MARC undertook a review of UEM Land and Gamuda’s public information corporate credit ratings in conjunction with its review of its MARC-1ID(s)  rating on the ICP programme. MARC is of the view that both entities continue to maintain credit profiles consistent with a MARC-1ID(s) short-term rating.  UEM Land’s government ownership and support through Khazanah Nasional Berhad, the government’s investment holding arm, continues to be a major driver of its credit strength. Its financial profile, however, remains moderate on account of its uneven operating cash flow and exposure to cyclical property demand. In common with UEM Land, Gamuda’s recent financial performance has been characterised by lower operating margins and declining pre-tax profit. Gamuda, however, continues to benefit from the steady recurrent earnings generated by its toll road and water concessions. Liquidity at the consolidated entity is strong, with Gamuda, reporting RM1,031.8 million in consolidated unrestricted cash and bank balances as of July 31, 2009. Its consolidated debt-to-equity ratio improved to 0.48 times in FY2009 (FY2008: 0.59 times) on the back of higher repayment of short-term borrowings as well as larger shareholders’ fund attributed to higher retained earnings.


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