Syarikat Kapasi Sdn Bhd - 2011

MARC has affirmed the ratings of MARC-1(fg)/AAA(fg) on Syarikat Kapasi Sdn Bhd’s (Kapasi) RM200 million Commercial Papers/Medium Term Notes (CP/MTN) Programme with a stable outlook. The ratings are premised on the financial guarantee insurance policy provided by Danajamin Nasional Berhad (Danajamin) for the CP/MTN Programme. MARC’s current rating of AAA/stable on Danajamin is based on its important role as Malaysia’s sole financial guarantee insurer, its status as a government-sponsored entity, its solid capital base and ample liquidity. The ratings affect RM30 million and RM70 million of MTNs issued under the programme, maturing in June 2013 and June 2014 respectively.

Kapasi, a wholly-owned subsidiary of Asian Pac Holdings Bhd, is developing the second phase of Kota Kinabalu Times Square (KKTS) which consists of a retail mall, five condominium blocks, exterior shops and carpark lots with a combined gross development value (GDV) of RM1.35 billion. Since the ratings were last assigned, the developer has made changes to its plans for the condominium component of KKTS. The change in plans has pushed the completion date back by six months, delaying revenue and cash generation from the project. MARC believes that further delays in the project could lead to an increased reliance on refinancing for the repayment of outstanding notes, given the programme’s relatively short five-year tenure.
 
Kapasi’s amended building plans add an additional 133 units to the 498 units of condominiums planned. KKTS’s estimated gross development value (GDV) has increased by RM125 million as a result of the change in building plans and higher revised average prices per square foot for its condominium units. As of June 30, 2011 the company has achieved a 50% take-up rate in two of the five condominium blocks. An anchor tenant has been secured to occupy 130,000 sq ft of the retail mall’s 669,252 sq ft. In terms of construction completion risk, Kapasi’s track record of having successfully completed the first phase of KKTS and Karamunsing Capital in Kota Kinabalu provides some degree of assurance regarding Kapasi’s ability to manage risks associated with the development of the second phase of KKTS.

With the completion of both projects and the delay in the launch in the second phase of KKTS, earnings have been on a declining trend. For financial year ending March 2011 (FY2011), Kapasi registered revenue of RM1.74 million (FY2010: RM12.68 million) and a pre-tax loss of RM2.57 million (FY2010:1.01 million).  Revenue was derived mainly from car park rental income. MARC expects condominium unit sales as well as the 41 exterior shop lots of its retail phase development to drive FY2012’s earnings. Kapasi’s debt-to-equity improved to 0.18 times in FY2011 (FY2010: 0.28 times) following a repayment of a RM47 million fixed-term loan that was taken to partly finance the basement work of the KKTS (phase 2) project.

Noteholders under the CP/MTN programme are insulated from downside risks in relation Kapasi’s credit profile by the guarantee provided by Danajamin. Any changes in the supported ratings or rating outlook will be primarily driven by changes in Danajamin’s credit strength.

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