BERJAYA LAND BERHAD - 2018

MARC has affirmed its ratings on Berjaya Land Berhad’s (BLand) outstanding RM500.0 million Medium-Term Notes (MTN) Programme guaranteed by Danajamin Nasional Berhad (Danajamin) at AAA_(fg) and RM150.0 million MTN Programme guaranteed by OCBC Bank (Malaysia) Berhad (OCBC Malaysia) at AAA_(bg). The outlook on the ratings is stable.

The affirmed ratings reflect the unconditional and irrevocable guarantees provided by Danajamin and OCBC Malaysia. Danajamin carries a financial insurer rating and counterparty rating of AAA/Stable while OCBC Malaysia has a financial institution rating of AAA/Stable based on public information.

BLand’s standalone credit profile remains weighed down by the weak domestic property market, its sizeable debt obligations and modest earnings from non-gaming subsidiaries. The company has mainly relied on proceeds from asset disposals and refinancing to address its financial obligations. BLand’s domestic property projects are largely limited to ongoing developments in Bukit Jalil, Kuala Lumpur, and Georgetown, Pulau Pinang, which have a combined gross development value (GDV) of RM1.1 billion. Unbilled sales from these projects stood at RM153.0 million as at June 30, 2018, providing some near-term earnings visibility. The property division recorded pre-tax profit of RM44.2 million for the financial year ended April 30, 2018 (FY2018) (FY2017: negative RM6.1 million). The improved performance was partly due to higher property sales and the implementation of a project cost reduction programme during the year.

BLand is streamlining its foreign projects through disposals of commercial properties, among which is the divestment of its stake in Berjaya Vietnam Financial Centre Ltd (BVFC) to a local Vietnamese firm for RM154.9 million. This disposal is expected to be completed by end-2018. BVFC is licensed by the Vietnamese government as a developer for a commercial and financial centre in Ho Chi Minh City. BLand is also seeking to dispose its interest in Berjaya Vietnam International University Town Ltd (BVIUT). To date, BLand has only two ongoing projects overseas, both of which are in Vietnam and have a combined GDV of RM329.5 million. These projects – the Topaz Twins residential development in Ho Chi Minh City and Hanoi Garden City township - have received moderate take-up rates.

BLand’s gaming subsidiary Berjaya Toto Berhad (BToto) continues to dominate the group’s consolidated financial performance, accounting for about 93.7% of operating profit for FY2018. BToto’s key subsidiary, Sports Toto Malaysia Sdn Bhd (Sports Toto) is a leading player in number forecast operations from which it generates strong operating cash flows, averaging around RM282.2 million per annum over the last five years. MARC maintains a AA-/Stable rating on Sports Toto’s RM800.0 million 10-year MTN-1 and 15-year MTN-2 programmes.

For FY2018, BLand’s consolidated revenue remained flat at RM6.4 billion but pre-tax profit fell significantly to RM69.9 million (FY2017: RM391.7 million). The lower profit was largely attributed to a non-cash provision of RM152.7 million for impairment on the delayed receipt of the balance of proceeds from the disposal of its China Great Mall project as well as unfavourable foreign exchange translation losses of RM92.2 million. Consolidated group borrowings stood at RM3.3 billion as at end-July 2018, marginally lower than RM3.4 billion as at end-FY2018.

At the holding company level, BLand’s revenue, which largely comprised dividend income, declined to RM54.3 million in FY2018 (FY2017: RM70.4 million), leading to an increase in pre-tax losses to RM126.9 million (FY2017: negative RM46.4 million). Total debt at the company level stood at RM1.3 billion. The outstanding notes under the programme stood at RM600.0 million as at end-August 2018 with the first repayment of RM225.0 million scheduled on December 17, 2018. This payment could be rolled over under the programme structure.

Notwithstanding BLand’s standalone risk factors, noteholders are insulated from downside risks related to the credit profile of BLand by the guarantees provided by Danajamin and OCBC Malaysia. Any change in the supported ratings or ratings outlook would be primarily driven by changes in the credit strength of the guarantors.

Major Rating Factors

Strength

• Fairly diversified business operations.

Challenges/Risks

• Weak liquidity position at holding company level; and
• Exposure to cross-border risks.