PUTRAJAYA HOLDINGS SDN BHD - 2018

MARC has affirmed its ratings on Putrajaya Holdings Sdn Bhd’s (PJH) issuances under the following programmes:

• RM370.0 million Sukuk Musharakah Programme (due 2030) at AAA_IS / stable;
• RM3.0 billion Sukuk Musharakah Programme (due 2032) at AAA_IS / stable;
• RM1.5 billion Sukuk Musharakah Medium-Term Notes (MTN) Programme (due 2033) at AAA_IS / stable

The ratings affirmation is mainly premised on PJH’s stable and sizeable rental income from the Malaysian government as the principal lessee of government buildings in Putrajaya under long-term lease-and-sublease agreements. The ratings also incorporate the credit strength of PJH’s government-linked major shareholders and its developmental track record as the master developer of the federal administrative centre in Putrajaya.

The stable ratings outlook reflects MARC’s expectation that PJH’s credit profile would remain commensurate with the ratings and will receive continued support from its key shareholders.

As at end-October 2018, PJH had delivered 40 government building projects with a total gross built-up area of 37.5 million sq ft under the lease-sublease arrangement with the government. It currently has only one ongoing government building construction project, the Parcel F development in Putrajaya. This project, which is being undertaken by its wholly-owned subsidiary Putrajaya Bina Sdn Bhd (Putrajaya Bina), comprises nine government buildings and is nearing completion. The Parcel F project will generate an additional annual lease rental of about RM216 million for PJH.

While government building projects under the lease-sublease arrangement provide assured rental streams, PJH’s non-government development projects continue to face challenging conditions given the prevailing weak property market. Nonetheless, PJH is less reliant on these projects to meet its financial obligations. Its annual lease rental income of about RM1.4 billion is more than sufficient to meet principal repayments of between RM500.0 million and RM685.0 million per year over the next five years.

As of end-September 2018, the take-up rate for ongoing residential projects remained moderate, albeit with some improvement, at 42.8% (9M2017: 37.3%). During the year, PJH also launched its third Perumahan Penjawat Awam 1Malaysia (PPA1M) project in Putrajaya. The gross development value (GDV) of its ongoing residential projects stood at RM1.24 billion (excluding the GDV for an affordable housing project of RM430 million). PJH has also expanded its foothold outside of Putrajaya by commencing construction of serviced apartments in Jalan Ampang, Kuala Lumpur with an expected GDV of RM700 million which are expected to be launched by early-2019.

For 1H2018, PJH’s revenue and operating profit increased by 43.0% and 23.2% y-o-y to RM1.5 billion and RM665.2 million, supported by the construction revenue of Parcel F and lease rental income from the newly completed Malaysian Anti-Corruption Commission building. Cash flow from operations (CFO) stood at RM417.5 million at end-1H2018. Group total borrowings were RM6.1 billion, with the debt-to-equity (DE) ratio remaining flat at 0.74x.

PJH’s cash position has remained healthy at RM828.2 million with no interim dividends paid during the period. While PJH has been paying cash dividends amounting to about 30% of its annual net profit, any substantially higher dividend payout could hamper the group’s liquidity position. The rating agency notes that PJH has significant financial flexibility as reflected by the group’s unutilised credit lines of around RM756.3 million, excluding the amounts available under the rated facilities.

Major Rating Factors

Strengths

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

Challenge/Risk

• Improving sales for non-government related property projects.