Putrajaya Holdings Sdn Bhd - 2012

MARC has assigned a rating of AAAIS to Putrajaya Holdings Sdn Bhd’s (PJH) RM3.0 billion Sukuk Musharakah Programme with a stable outlook. Concurrently, MARC has affirmed its AAAID and AAAIS ratings on PJH’s existing Islamic debt issuances with a stable outlook. A complete list of the affirmed ratings and rated issuances is provided at the end of this announcement.

Proceeds from the issue of notes under PJH’s new RM3.0 billion Sukuk Musharakah programme will be utilised to fund the construction of selected government and commercial buildings in Putrajaya as well as fully settle/refinance existing issues. Sublease rentals from six identified government buildings are sufficient to cover the principal payments of obligations under the Sukuk Musharakah programme. There is no ring-fencing of the sublease rental collections into a designated account to provide security to sukukholders; however, PJH will provide a negative pledge on the six identified buildings in favour of the sukukholders. Accordingly, MARC has assigned a senior unsecured sukuk rating of AAAIS to the programme.

The AAAIS senior unsecured sukuk rating reflects PJH’s strong historical profitability derived from subleasing government buildings in accordance with its build-lease-transfer concession agreement (CA), and its strong operating track record as the master developer of the federal government administrative capital. The rating also incorporates PJH’s exposure to development risk associated with the commercial component of the planned development programme and the weakened free cash flow which is expected to persist at PJH until 2015 based on the funding requirements for its development programme. Additionally, MARC expects to see an increase in PJH’s financial leverage over the near-to-intermediate term on account of ongoing financing needs for development.

MARC expects the pressure on PJH’s free cash flow generation and liquidity to be partly mitigated by the financial flexibility afforded to the company to re-issue notes under the Sukuk Musharakah programme. The programme limit will be progressively reduced only following the 13th year of the first issue under the programme. The rating agency also continues to view the financial strength of PJH’s key shareholders, Khazanah Nasional Berhad (Khazanah), the Malaysian government investment arm, and Petroliam Nasional Berhad (Petronas) as a positive rating factor.

PJH’s funding needs for previous development of government buildings and quarters have been met by Islamic debt issuances, while the repayment of obligations under these issuances have been adequately funded by the sublease rental payments from the government as the lessee under lease-and-sublease agreements between the Federal Land Commissioner and PJH for periods that correspond to or are longer than the maturity of the issues. The six identified buildings are projected to generate cumulative rental lease income of approximately RM5,390.0 million over the tenure of the programme to meet principal repayments of RM4,465.0 million of total sukuk to be issued under the programme.

For the nine months ended December 31, 2011, PJH recorded a revenue of RM1,250 million (FYE March 2011: RM1,479.1 million). The annualised revenue growth of 12.7% reflects the higher rental payments received following the commencement of sublease rental payments from buildings that were awarded certificates of practical completion and delivered to the government during the financial period. Lease rentals made up 69.4% of total revenue during the nine-month period. PJH saw lower contract revenue with construction works of government quarters reaching the tail-end stage. The company’s operating profit margin declined to 50.0% in FYE December 31, 2011 (FYE March 2011: 64.5%), due to the one-off gain of RM235.3 million from the disposal of Menara PJH and Lot 3C4 in FYE March 2011. 

PJH’s operating cash flow (CFO) generation remained strong at RM1,145.5 million for the nine months ended December 31, 2011 (FYE March 2011: RM1,093.0 million). Although there was higher repayment of borrowings during the period of RM1,340 million, net cash outflow from financing activities was lower at RM334.0 million (FYE March 2011: RM648.5 million) due to additional debt issued and lower dividend payment. PJH’s gearing showed a marginal decline to 1.12 times at end-December 2011 (FYE March 2011: 1.21 times). Assuming full issuance of the RM3.0 billion under the Sukuk Musharakah programme, PJH’s pro-forma debt-to-equity ratio would increase to 1.72 times.

MARC considers PJH’s financial flexibility to be strong given the availability of unutilised short-term credit lines of RM940 million (excluding amounts of the rated facilities available for drawdown) and its significant gearing covenant headroom.

The stable rating outlook incorporates a weakening in PJH’s free cash flow generation and debt service coverage from current levels, balanced against the stable cash flows generated by existing completed government buildings, its low business risk and strong financial flexibility.

The affirmed ratings with stable outlook are as follows:

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

Strengths