Report ID 60555 Popularity 506 views 16 downloads 
Report Date Jul 2020 Product  
Company / Issuer Putrajaya Holdings Sdn Bhd Sector Property
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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 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

The ratings affirmation and outlook are premised on the predictable and sizeable rental income from the Malaysian government as the principal lessee of the 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 major shareholders who are government-linked. 

As at end-December 2019, 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 reached the tail end, PJH has increased its undertaking of commercial and residential property projects. These are mainly in Putrajaya to complement the existing developments including affordable housing projects for civil servants through Perumahan Penjawat Awam Malaysia (PPAM). It has commenced a mixed commercial development, comprising a retail mall, a serviced apartment complex, an event hall, a hotel and a student accommodation block in Precinct 7 and 8 with a combined gross development cost (GDC) of RM864.8 million. This is scheduled to be completed by end-2025. 

MARC views that these projects pose an increased market risk amid 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 RM349.0 million as at end-December 2019, of which more than half comprises semi-detached houses priced above RM2.0 million. Overall, the average take-up rate for PJH’s ongoing residential projects is 49% during the period. 

For 2019, PJH recorded revenue and operating profit of RM2.1 billion and RM1.1 billion. Cash flow from operations (CFO) increased to RM1.3 billion from RM886.5 million in the previous year, mainly from reducing property inventories related to affordable housing units in Precinct 5. Its debt-to-equity (DE) declined to 0.64x from 0.72x 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 RM480.0 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.

Major Rating Factors 

Sizeable sublease rental income from the Malaysian government as lessee; and
Strong likelihood of support from government-linked shareholders.

Non-government related developments exposed to market risk amid weak 
         property market sentiment.