TROPICANA CORPORATION BERHAD - 2022 |
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| Report ID | 6053890046869 | Popularity | 714 views 102 downloads | |||||
| Report Date | Aug 2022 | Product | ||||||
| Company / Issuer | Tropicana Corporation Bhd | Sector | Property | |||||
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| Rationale |
Rating action MARC Ratings has affirmed its ratings on Tropicana Corporation Berhad’s RM1.5 billion Islamic Medium-Term Notes Programme (Sukuk Wakalah) and RM2.0 billion existing Perpetual Sukuk programme at A+IS and AIS. The ratings outlook is maintained at negative. As at end-May 2022, the outstanding of the Sukuk Wakalah and Perpetual Sukuk programme stood at RM1.5 billion and RM648 million. The one-notch rating differential on the Perpetual Sukuk is in line with MARC’s methodology on subordinated instruments. No equity credit was given to the Perpetual Sukuk issuance as it ranks pari passu with the senior obligations. Rationale The ratings outlook remains negative pending completion of the group’s ongoing plans of asset disposals and equity raising, expected to be completed by end-2022, to strengthen its balance sheet. Cash proceeds of about RM300 million from the proposed exercises will be utilised to pare down borrowings which currently stand at RM4.39 billion (including Perpetual Sukuk). Its gross leverage position is expected to reduce to below 0.75x by end-2022 from 0.81x as at end-March 2022. Tropicana’s established track record in the domestic property industry and earnings visibility from unbilled sales remain key rating drivers for the rating affirmation. The group has ongoing projects with a combined gross development value (GDV) of RM4.4 billion as at end-March 2022, of which development in the central region accounted for about 79%. Average take-up rate for ongoing projects launched before 2021 is strong at 70%. Nonetheless, the take-up rates for high-rise projects in Genting Highlands (GDV RM1.0 billion) and Langkawi Island (GDV: 573 million), which were launched during the pandemic-induced closures in 2021, have been modest and are expected to improve with the normalisation of economic activities. Unbilled sales of about RM1.5 billion provide earnings visibility through 2024. Inventory level stood lower at RM259 million (end-2021: RM275 million), mainly attributable to the reduction in residential units and shop lots of the Tropicana Danga Cove development in Johor Bahru. The group is expected to stagger its new launches and focus on improving unit sales as well as reducing inventory levels. For full year 2021, Tropicana recorded y-o-y lower revenue of RM876.0 million and operating profit of RM79.9 million in the absence of land disposals (2020: land sales of RM399 million). Cash flow from Operations (CFO) remained negative. Tropicana has sufficient financial flexibility to meet its financial obligations with unutilised credit lines of about RM280 million and unrestricted cash balance of RM255 million as at end-March 2022. Its RM1.1 billion worth of unencumbered landbank also provides some source of liquidity. Rating outlook The negative outlook considers the group’s debt coverage metrics and the potential for further weakening in view of the need for liquidity to fund projects. Rating trajectory Upside scenario The outlook revision to stable would consider the expected improvement in the group’s debt metrics particularly in the reduction of its gross leverage position to below 0.75x by end-2022, as well as the group’s financial performance. Downside scenario The rating could be lowered if there is no material development to reduce its borrowings and/or its financial performance weakens amid the challenging property market conditions, thereby affecting its cash flow generation to meet its financial obligations. Key strengths
Key risks
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