Rating action     
MARC has assigned a rating of AAA_IS with a stable outlook on Putrajaya Holdings Sdn Bhd (PJH)’s proposed RM1.0 billion 20-year Sukuk Wakalah Programme. Concurrently, the rating agency has affirmed its existing ratings on PJH’s issuances. The outlook for all ratings is stable.

The ratings and outlook are premised on the predictable and sizeable rental income from the Malaysian government as the principal lessee of government buildings in Putrajaya that were constructed by PJH. The buildings are tenanted under several long-term lease-and-sublease agreements between PJH and the government. The rental income is deemed more than sufficient to meet the financial obligations under the rated issuances. The ratings also incorporate PJH’s developmental track record as the master developer of the federal administrative centre in Putrajaya and the credit strength of its government-linked major shareholders.

As at end-December 2020, PJH had delivered 41 government building projects with a total gross built-up area of 42.3 million sq ft, including the 4.8 million sq ft Parcel F development completed in April 2019. As construction of government buildings is reaching the tail end, PJH has increased its undertaking of commercial and residential property projects. These are mainly located in Putrajaya to complement existing developments including affordable housing projects for civil servants through the Perumahan Penjawat Awam Malaysia (PPAM) scheme. It has commenced two mixed development projects, comprising a retail mall, a serviced apartment complex, an event hall, MRT and non-MRT commuter facilities as well as a hotel and office suite in Precincts 7 and 8 while another project in Precinct 8 is still in the planning stage. These projects, excluding a project under planning, have a combined gross development cost of RM775.8 million. Proceeds from the proposed RM1.0 billion Sukuk Wakalah Programme will fund the construction of these projects. As these developments are scheduled to be completed by end-2025, financial obligations under the new programme will be met through PJH’s strong recurring cash inflow from the leasing of its existing government buildings.

MARC views that these projects pose an increased market risk amid the current weak property market conditions and are a departure from PJH’s mainstay of lease-and-sublease arrangements with the government that provide assured payment streams. Nonetheless, non-government related projects remain modest at this juncture. Total property inventory stood at RM464.5 million as at end-December 2020, of which more than half comprises semi-detached houses priced above RM2.0 million per unit. Overall, the average take-up rate for PJH’s ongoing residential projects is 58% during the period.

For 2020, PJH recorded revenue and operating profit of RM1,794.0 million and RM979.2 million. Cash flow from operations (CFO) increased slightly to RM1.6 billion (FY2019: RM1.3 billion), mainly from reducing property inventories, particularly its affordable housing properties. Its debt-to-equity (DE) ratio improved to 0.55x from 0.64x in the previous year. PJH derives annual lease rental income of RM1.6 billion which is more than sufficient to meet principal repayments of between RM470.0 million and RM835.0 million annually over the next five years. PJH retains a strong liquidity position with a moderate dividend payout of about 30% of its annual net profit.

Rating outlook     
The stable 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.

Rating trajectory

Downside scenario