MARC Ratings has revised its outlook on Tropicana Corporation Berhad’s rated programmes to stable from negative. Concurrently, the ratings on the programmes, the RM1.5 billion Islamic Medium-Term Notes (IMTN) (Sukuk Wakalah) and RM2.0 billion Perpetual Sukuk, have been affirmed at A_IS and A-_IS.

The outlook revision considers the improved credit profile of Tropicana, driven by its ongoing deleveraging exercises that have resulted in its leverage — debt-to-equity (DE) ratio — to strengthen to around 0.70x as at end-February 2024 from 0.87x as at end-2022. The group had disposed key investment properties and land parcels worth RM761.5 million, leading to total borrowings declining to about RM3.5 billion from RM4.4 billion; these include redemption of asset-linked borrowings. MARC Ratings understands further disposals of investment properties — mainly comprising a shopping mall, a hotel and an international school — and land parcels are in advance stages of negotiations and would reduce borrowings to RM2.4 billion, with DE projected to decline to around 0.50x by end-2024. 

The ratings affirmation incorporates Tropicana’s longstanding track record in property development, its sizeable unbilled sales from ongoing property projects as well as the expected improvement in the overall financial performance, supported by lower interest costs from significant reduction in borrowings.  Ongoing developments — primarily in the Klang Valley, Genting Highlands and Langkawi — have a total gross development value (GDV) of RM5.7 billion and have recorded an average take-up rate of 71% as at end-2023 (end-2022: 63%). This improvement was due to an uptick in demand, particularly for its high-rise developments in Langkawi, Genting Highlands, and the Klang Valley with a collective GDV of RM1.8 billion. Unbilled sales of RM2.5 billion underline its earnings visibility over the next two years. Over the near term, MARC Ratings expects the group to return to profitability from pre-tax loss of RM100.0 million in 2023. 

The outstanding under the Sukuk Wakalah and Perpetual Sukuk Programmes declined to RM855.5 million and RM648.0 million as at end-April 2024 (end-March 2023: RM1.5 billion and RM648.0 million). The one-notch rating differential between the Sukuk Wakalah and Perpetual Sukuk reflects the latter's features, in line with MARC Ratings’ methodology on subordinated instruments. No equity credit has been given to the Perpetual Sukuk issuance as it ranks pari passu with the senior obligations.

The stable outlook assumes that Tropicana’s business and financial performance will continue to improve, and conclusion of asset sales and/or refinancing initiatives to strengthen balance sheet will be timely to meet its upcoming financial obligations.

We do not envisage any immediate upside to the current ratings. The ratings could be lowered if Tropicana’s financial position were to weaken, particularly its liquidity position in addressing its upcoming financial commitments.