Putrajaya Holdings Sdn Bhd - 2010

MARC has affirmed its AAAID /MARC-1ID and AAAIS ratings on Putrajaya Holdings Sdn Bhd’s (PJH) Islamic debt issuances as follows:-

• RM570 million Bai Bithaman Ajil (BBA) Bonds Issuance Facility (due 2013)
• RM850 million BBA Bonds Issuance Facility (due 2013)
• RM850 million BBA Serial Bonds Issuance Facility (due 2015)
• RM1.5 billion Murabahah Notes Issuance (MUNIF) Facility (due 2015)
• RM2.2 billion Murabahah Medium Term Notes (MMTN) Programme (due 2021) 
• RM1.5 billion Murabahah Commercial Papers/Medium Term Notes (CP/MTN) Programme (due 2013)
• RM1.5 billion Sukuk Musyarakah MMTN Programme (due 2033).

The outlook for all the ratings is stable. The ratings are premised on PJH’s strong and stable rental streams received from subleasing government buildings to the Malaysian government. The BBA bonds and RM2.2 billion MMTN issuance are secured by assignments of sublease rental receivables for identified parcels of development or buildings. The remaining rated facilities are unsecured but somewhat protected by negative pledge covenants. The ratings also take into consideration the significant financial flexibility afforded by its major shareholders, Petroliam Nasional Berhad (Petronas) via KLCC (Holdings) Sdn Bhd and Khazanah Nasional Berhad (Khazanah), the government’s investment holding arm.

As the master developer of the federal government administrative centre of Putrajaya, PJH has been tasked to plan, design and finance the construction of government buildings and government quarters for which the company executed a concession agreement in 1999 and design-and-build (DBA) agreement in 1998 with the government. Under a concession agreement, PJH is granted a 25-year lease by the government for the land and buildings, which upon completion of construction and delivery are then subleased to the government for the same period. As of date, the majority of government buildings have been completed and handed over to the government and the construction of buildings under Phase II is ongoing. Sublease rental payments, which commenced at RM2.50 psf, will be revised upwards by an annual compounded rate of 3.0% every three years for a specified period and thereafter at a flat rate for 15 years.  As of June 30, 2010, lease rentals captured in the security accounts collectively amounted to RM600.6 million. The security account balances with the rental income and PJH’s internal cash generation indicate that the company is well-positioned to meet its RM756.0 million debt service requirements in 2011.

Under the DBA agreement for the construction of government quarters, the government will make progressive payments. The completion date for ongoing developments under Phase III has been revised to April 2011 from end-2010 as a result of changes to design specifications requested by the government.  As of June 30, 2010, 74% of the units under Phase III have achieved practical completion and been handed over to the government. 

For the financial year ended March 31, 2010 (FY2010), PJH’s revenue declined to RM1,750.8 million (FY2009: RM1,829.1 million) mainly due to lower progress billings as most of the projects have reached their tail-end stage, while profit before tax decreased by 25.7% to RM495.0 million (FY2009: RM666.5 million). The group registered negative net working capital of RM115.6 million in FY2010 (FY2009: RM256.7 million) due to a sharp increase in trade payables as a result of accruals of RM110 million representing final settlement to a contractor. 

The company’s borrowings have been on a declining trend in line with the progress of the overall construction of Putrajaya, with its debt-to-equity (DE) ratio improving to 1.21 times (FY2009: 1.43 times) against its covenant of 4.0 times following repayment of RM580.0 million of Islamic issuances. PJH’s financial flexibility remains strong bolstered by its available unutilised credit lines of RM1,250 million (not including the rated issuances available for drawdown), and unencumbered interest in the subleases of completed buildings funded by borrowings outside the rated facilities.

The stable ratings outlook reflects PJH’s strong credit profile underpinned by its recurring sublease rental income stream, supported by its position as the main concessionaire for the development of the federal administrative centre in Putrajaya.

Major Rating Factors

Strengths