Putrajaya Holdings Sdn Bhd - 2013

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

   (i)   RM3.0 billion Sukuk Musharakah Programme (due 2032)
   (ii)  RM1.5 billion Sukuk Musharakah Medium Term Notes (MTN) Programme (due 2033)
   (iii) RM1.5 billion Murabahah Notes Issuance Facility (MUNIF) (due 2015)
   (iv) RM2.2 billion Murabahah Medium Term Notes (MMTN) Programme (due 2021) 

The outlook for all the ratings is stable. The rating is premised on PJH’s strong financial profile derived from stable and predictable rental income streams received from the government for the sublease of government buildings in accordance with a build-lease-transfer concession agreement. While sublease rentals are not captured into designated accounts to meet profit and principal payments for (i), (ii) and (iii), PJH has provided negative pledges on identified government buildings for the respective programmes and facility. In respect of (iv), sublease rentals from identified government buildings are assigned to service the notes under the programme. MARC also notes that the MMTN programme has benefited from additional assignments of sublease rentals which had earlier been assigned to other facilities that were redeemed during the year. Overall, MARC considers the lease rentals from the government buildings to be sufficient to cover the repayments under the rated programmes and facility.

The rating also incorporates PJH’s role as master developer and its significant operating track record in the development of the federal government administrative capital of Putrajaya. PJH handed over 35.4 million sq ft of government buildings and the third phase of government quarters to the government in 2011 and 2012 respectively, and is currently planning and constructing about 8.37 million sq ft of government buildings. In addition, the rating agency views the strength of the group’s major shareholders, namely Petroliam Nasional Berhad (Petronas) through KLCC Holdings Sdn Bhd and Khazanah Nasional Berhad (Khazanah), as a positive rating consideration. Notwithstanding these factors, MARC observes PJH’s gradual shift in its business risk profile as the group undertakes more residential and commercial projects to further develop Putrajaya in line with the master plan. Accordingly, the group has steadily increased its property launches since 2011 for which MARC has observed strong take-up rates for the majority of its projects. Nonetheless, given the moderating outlook for the property sector, the group may encounter challenges to sustain strong take-up rates for its future launches. As of end-June 2013, PJH’s gross development value for its residential and commercial properties stood at RM1.48 billion.
 
For financial year ending December 31, 2012 (FY2012), PJH’s revenue grew marginally by 2.3% to RM1.8 billion from the annualised revenue of RM1.7 billion in the preceding year, mainly on account of higher lease rentals received of RM1.4 billion during the year. Lease rentals accounted for 77.2% of revenue  in  FY2012 (9MFY2011: 71.6%).  Contract revenue  continues to moderate, registering  RM85.0 million in FY2012 (9MFY2011: RM84.5 million) in line with government-related construction works reaching the tail-end stages. Operating profit margin remained strong at 56.5% in FY2012 (9MFY2011: 47.6%). MARC views the contribution from stable lease rentals to provide the group with sustainable revenue, supported by sale of land and property development. For the first half of financial year ended December 31, 2013 (1HFY2013), PJH’s revenue increased marginally by 6.1% to RM872.3 million (1HFY2012: RM822.3 million) due largely to higher sales of residential properties and contract revenue from the MITI building. However, the group’s operating profit margin fell slightly to 55.83% during the period (1HFY2012: 58.5%) due largely to the increase in cost of sales and operating costs.

The group recorded strong operating cash flow (CFO) of RM1.11 billion in FY2012 (9MFY2011: RM859.1 million) while free cash flow and CFO interest coverage ratio stood higher at RM827.2 million and 3.96% respectively (9MFY2011: RM664.5 million; 3.62%). Meanwhile, PJH’s gearing level declined to 1.01 times in FY2012 (9MFY2011: 1.13 times) as it pared down its debt obligations to RM5.46 million in FY2012 (9MFY2011: RM5.62 million). MARC also notes that PJH has met the final redemption of its RM570 million Al-Bai Bithaman Ajil (BBA) bonds and RM850 million BBA bonds in March and July 2013 respectively as well as early redeemed its RM850 million BBA in end-July 2013. The respective lease rentals which were initially assigned to meet the redemption of the aforementioned facilities will be earmarked to meet PJH’s remaining unsecured and secured debt facilities.

The rating agency notes the high working capital requirement for PJH’s construction and property development activities in the medium term would increase its reliance on external funding. The group is also in the process of obtaining financing for projects at the subsidiaries’ levels, which include the construction of the MITI office tower by its wholly-owned subsidiary, Putrajaya Management Sdn Bhd. The project will be funded through a RM370 million IMTN Programme which is expected to increase the group’s debt-to-equity (DE) ratio to 1.08 times. MARC notes that this remains well within the covenanted gearing ratio of 4.0 times.  PJH has strong financial flexibility with unutilised credit line of approximately RM3.44 billion comprising RM315.0 million of Murabahah MTN, RM2.2 billion of Sukuk Musharakah and RM925.7 million of revolving credit facilities.

The stable ratings outlook assumes that PJH’s credit metrics with respect to its cash flow and debt service coverage would remain consistent with the assigned ratings in the near term.

Strengths