CREDIT ANALYSIS REPORT

PUTRAJAYA HOLDINGS SDN BHD - 2021

Report ID 6053890034 Popularity 86 views 28 downloads 
Report Date Sep 2021 Product  
Company / Issuer Putrajaya Holdings Sdn Bhd Sector Property
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Rationale
Rating action     
MARC has affirmed its ratings on Putrajaya Holdings Sdn Bhd’s (PJH) issuances under the following programmes:

  • RM1.0 billion 20-year Sukuk Wakalah Programme (due 2041) at AAAIS;
  • RM370.0 million Sukuk Musharakah Programme (due 2030) at AAAIS;
  • RM3.0 billion Sukuk Musharakah Programme (due 2032) at AAAIS; and
  • RM1.5 billion Sukuk Musharakah Medium-Term Notes (MTN) Programme (due 2033) at AAAIS.
The outlook for all ratings is stable. 

Rationale     
The ratings affirmation and outlook are premised on the continued 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, complementing 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 ongoing projects have a combined gross development cost of RM775.8 million and will be funded through proceeds from the group’s recent RM1.0 billion Sukuk Wakalah Programme. 

PJH’s increased involvement in private development projects exposes the company to market risk amid a weak property market. 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 to RM1.6 billion (FY2019: RM1.3 billion), mainly from reducing property inventories, particularly its affordable housing units. 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 in 2020.

Rating outlook     
The stable outlook reflects MARC’s expectations that PJH’s credit profile would remain commensurate with the ratings and the company would be supported by its key shareholders if necessary.

Rating trajectory

Downside scenario     
A significant reduction in key shareholders’ support or changes to the shareholding structure could prompt downward rating pressure.

Key Strengths
  • Steady and sizeable sublease rental income from the Malaysian government 
  • High likelihood of support from government-linked shareholders
Key Risks
  • Exposure to market risk from undertaking private development projects 

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