CREDIT ANALYSIS REPORT

PUTRAJAYA HOLDINGS SDN BHD - 2017

Report ID 5667 Popularity 1566 views 124 downloads 
Report Date Feb 2018 Product  
Company / Issuer Putrajaya Holdings Sdn Bhd Sector Property
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Rationale

MARC has affirmed its debt ratings on Putrajaya Holdings Sdn Bhd’s (PJH) outstanding issuances as follows:

  • RM370.0 million Sukuk Musharakah Programme (due 2030) at AAAIS/stable;
  • RM3.0 billion Sukuk Musharakah Programme (due 2032) at AAAIS/stable;
  • RM1.5 billion Sukuk Musharakah Medium-Term Notes (MTN) Programme (due 2033) at AAAIS/stable; and
  • RM2.2 billion Murabahah Medium-Term Notes (MMTN) Programme (due 2021) at AAAIS/stable.

The affirmed ratings are mainly premised on PJH’s healthy cashflows derived from stable and sizeable rental income from the Malaysian government for subleasing government buildings in Putrajaya under long-term lease-and-sublease agreements; the credit strength of PJH’s government-linked major shareholders; and its developmental track record as the master developer of Putrajaya. These factors notwithstanding, the group’s leverage position has remained moderately high in part to fund its ongoing projects.

To date, PJH has constructed and delivered 38 government buildings with a total gross built-up area of 37.5 million sq ft under the build-lease-transfer (BLT) model. Its most recently completed project, the Malaysian Anti-Corruption Commission (MACC) building, was handed over in July 2017. As with other completed government buildings, PJH has subleased the MACC building to the government under a 25-year lease-and-sublease agreement with the Federal Lands Commissioner. Currently, PJH only has one ongoing government building construction project consisting of nine office buildings in Parcel F, Putrajaya which is expected to be completed by end-2018. As government building construction projects have declined, PJH has steadily increased non-government related projects, namely residential and commercial developments. This has exposed the group to market risk.

Against a backdrop of the challenging outlook for the property market, PJH’s residential projects have recorded lower-than-expected take-up rates. As at end-9M2017, its residential projects, which have a combined gross development value (GDV) of RM1.3 billion for 1,279 units, recorded an average take-up rate of 37.3%. The group’s low land cost for its ongoing projects, which are in Putrajaya, provides some tolerance for the lower take-up rate during the current weak market phase. In addition, PJH has also reduced its residential property development launches to a total GDV of about RM125.9 million during 9M2017 compared to a total GDV of about RM266.6 million during 9M2016.

PJH has been building affordable houses under the 1Malaysia Civil Servants Housing (PPA1M) scheme since mid-2015. The group launched another 1,062 units under the programme in January 2017, with the project reaching 54.2% completion as at end-September 2017. In respect of the 9.2 acres of commercial land along Jalan Ampang, Kuala Lumpur and the sizeable 1,678.3 acres of land in Sepang, Selangor that PJH holds, plans for mixed development projects at these sites are still at the preliminary stage.

MARC views that the exposure to property market risk could exert some pressure on the group’s working capital requirement although PJH’s sizeable sublease rental income of about RM1.4 billion p.a. and large cash buffer provide strong counterweight to this concern. The annual rental income is more than sufficient to meet its financial obligations that range between RM480.0 million and RM810.0 million p.a. over the next five years.

For 9M2017, PJH registered an increase of 6.8% y-o-y and 8.1% y-o-y in revenue and pre-tax profit to RM2.0 billion and RM818.5 million respectively, supported by construction revenue from the Parcel F government building project. Cash flow from operations (CFO) of RM841.9 million during 9M2017 remained mainly supported by stable lease rental earnings. The group’s cash and cash equivalents stood higher at about RM1.3 billion (2016: RM938.8 million. Total borrowings stood at RM6.4 billion as at end-September 2017, with the debt-to-equity (DE) ratio increasing marginally by 0.82 times (2016: 0.80 times). Over the near term, its leverage position would remain elevated as borrowings are likely to rise to fund the Parcel F government building project and to meet working capital requirement for its ongoing residential projects.

MARC notes that PJH has considerable financial flexibility arising from unutilised credit lines of about RM1.6 billion, and creditworthy shareholders KLCC Holdings Sdn Bhd and Khazanah Nasional Berhad. MARC also observes that PJH has increased dividend payments during 9M2017 to RM242.0 million (2016: RM110.0 million) and views that further sharp increases in the dividend quantum could moderate the group’s liquidity position.

The stable ratings outlook reflects MARC’s expectations that PJH’s credit profile would remain commensurate with the ratings. Any significant weakening in credit metrics and/or shareholder support could apply downward pressure on the ratings.

Major Rating Factors

Strengths

  • Predictable and stable sublease rental income from the Malaysian government; and
  • Strong likelihood of support from government-linked shareholders.

Challenges/Risks

  • Challenging prospects for the property industry.
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