Saturday, Jan 04, 2003
Malaysian Rating Corporation Berhad (MARC) has reaffirmed the long-term corporate debt rating of A (A flat) of Talam Corporation Berhad (Talam) RM150 million principal amount of 7-year 5.0% secured bonds with 107.6 million detachable warrants (2000/2007).
The reaffirmation of the rating reflects the strength of the issue structure that is secured by a property development project, the Saujana Puchong project, which forms the primary source of repayment of the bonds issue. In addition, the specific assignment of the sales proceeds, redemption account and rental income from Talam Corporation Bhd’s commercial buildings continue to afford further protection to bondholders. The rating is, however, moderated by Talam’s high debt leverage and tight liquidity position, and the Group’s exposure to adverse developments in the property market.
Out of fourteen (14) phases and sub-phases launched for the Saujana Puchong project as at 31 August 2002, seven (7) have recorded more than 90% sales, with combined sales of RM478.5 million (or 84% of total GDV launched), compared to RM367 million when the bonds were first rated in August 2000. MARC believes that the market demand for the project will be sustained given the large residential component.
Refinancing risk is mitigated by the serial nature of the bonds with different maturities. In August 2002, Talam made an early redemption of RM40 million, almost 15 (fifteen) months earlier than the scheduled mandatory redemption date in November 2003, therefore reducing the outstanding bond limit to RM110 million. The next redemption of RM15 million will be due in November 2004.
Liquidity risk is mitigated with the requirement for a liquidity buffer in the redemption account equivalent to 15% of the subsequent year’s instalment, if the actual cash flow meets the projection. With the redemption sum set at 20% of the sales price for each unit sold, the amount of liquidity buffer would rise in the event of an accelerated development of certain phases. This would essentially protect the bondholders’ interests particularly in respect of the longer dated bonds. Investment risk is also addressed, as monies in the redemption account will only be invested in government treasury bills/securities and fixed deposits with financial institutions.
The investment income in the redemption account and rental income from Menara Maxisegar and Pandan Kapital are utilized to meet the coupon payments. The rental stream from these commercial buildings is exposed to the credit risk of tenants and risk of tenancy migration. The risk is, however, mitigated since the cash flow from the Saujana Puchong project can be used to absorb any shortfall in the coupon payments.
For fiscal year 2002, the Group chalked up a 36% increase in its revenue to RM772.5 million from RM567.3 million in the previous corresponding period. Property development and construction continued to drive the Group’s revenue upwards, contributing about 87% of its revenue (FY2001: 86%), as a result of the increase in the number of completed properties. Despite the increase in revenue, pre-tax profit was lower at RM45.9 million against RM53.3 million previously, due to the overall lower margins contributed by different product mix; cost of sales rose by almost 43% to RM660.5 million from RM462.7 million in FY2001. For the six-month period ended July 2002, the Group’s revenue rose by 53.5% to RM493.4 million from RM321.4 million in the previous corresponding period. Pre-tax profit, meanwhile, more than doubled to RM35.2 million from RM17.1 million in the first half of fiscal year 2002. The improvements were mainly due to new developments launched in the third quarter of the preceding year, mainly Bandar Seri Bukit Jalil and Saujana Damansara
The Group’s total borrowings swelled by more than one-fold to RM1.15 billion in fiscal year 2002 from half a billion Ringgit previously, largely due to Maxisegar Sdn Bhd’s Islamic debt financing of RM720 million drawndown during the year. Hence, the Group’s debt-to-equity ratio increased to 2.0 times in fiscal year 2002 from 0.9 times previously. Under the issue structure, the gearing ratio has been initially capped at 1.5 times. The ongoing corporate restructuring exercise will result in the consolidation of all the property entities of the Group under one umbrella. To accommodate the higher consolidated borrowing base, the Group had in August 2001 obtained the approval from its bondholders to increase the debt-to-equity cap to 2.5 times. Even though the gearing level is somewhat aggressive, MARC takes comfort that most of these borrowings have specific take-out source from the Group’s individual development projects.
The reaffirmation of the rating reflects the strength of the issue structure that is secured by a property development project, the Saujana Puchong project, which forms the primary source of repayment of the bonds issue. In addition, the specific assignment of the sales proceeds, redemption account and rental income from Talam Corporation Bhd’s commercial buildings continue to afford further protection to bondholders. The rating is, however, moderated by Talam’s high debt leverage and tight liquidity position, and the Group’s exposure to adverse developments in the property market.
Out of fourteen (14) phases and sub-phases launched for the Saujana Puchong project as at 31 August 2002, seven (7) have recorded more than 90% sales, with combined sales of RM478.5 million (or 84% of total GDV launched), compared to RM367 million when the bonds were first rated in August 2000. MARC believes that the market demand for the project will be sustained given the large residential component.
Refinancing risk is mitigated by the serial nature of the bonds with different maturities. In August 2002, Talam made an early redemption of RM40 million, almost 15 (fifteen) months earlier than the scheduled mandatory redemption date in November 2003, therefore reducing the outstanding bond limit to RM110 million. The next redemption of RM15 million will be due in November 2004.
Liquidity risk is mitigated with the requirement for a liquidity buffer in the redemption account equivalent to 15% of the subsequent year’s instalment, if the actual cash flow meets the projection. With the redemption sum set at 20% of the sales price for each unit sold, the amount of liquidity buffer would rise in the event of an accelerated development of certain phases. This would essentially protect the bondholders’ interests particularly in respect of the longer dated bonds. Investment risk is also addressed, as monies in the redemption account will only be invested in government treasury bills/securities and fixed deposits with financial institutions.
The investment income in the redemption account and rental income from Menara Maxisegar and Pandan Kapital are utilized to meet the coupon payments. The rental stream from these commercial buildings is exposed to the credit risk of tenants and risk of tenancy migration. The risk is, however, mitigated since the cash flow from the Saujana Puchong project can be used to absorb any shortfall in the coupon payments.
For fiscal year 2002, the Group chalked up a 36% increase in its revenue to RM772.5 million from RM567.3 million in the previous corresponding period. Property development and construction continued to drive the Group’s revenue upwards, contributing about 87% of its revenue (FY2001: 86%), as a result of the increase in the number of completed properties. Despite the increase in revenue, pre-tax profit was lower at RM45.9 million against RM53.3 million previously, due to the overall lower margins contributed by different product mix; cost of sales rose by almost 43% to RM660.5 million from RM462.7 million in FY2001. For the six-month period ended July 2002, the Group’s revenue rose by 53.5% to RM493.4 million from RM321.4 million in the previous corresponding period. Pre-tax profit, meanwhile, more than doubled to RM35.2 million from RM17.1 million in the first half of fiscal year 2002. The improvements were mainly due to new developments launched in the third quarter of the preceding year, mainly Bandar Seri Bukit Jalil and Saujana Damansara
The Group’s total borrowings swelled by more than one-fold to RM1.15 billion in fiscal year 2002 from half a billion Ringgit previously, largely due to Maxisegar Sdn Bhd’s Islamic debt financing of RM720 million drawndown during the year. Hence, the Group’s debt-to-equity ratio increased to 2.0 times in fiscal year 2002 from 0.9 times previously. Under the issue structure, the gearing ratio has been initially capped at 1.5 times. The ongoing corporate restructuring exercise will result in the consolidation of all the property entities of the Group under one umbrella. To accommodate the higher consolidated borrowing base, the Group had in August 2001 obtained the approval from its bondholders to increase the debt-to-equity cap to 2.5 times. Even though the gearing level is somewhat aggressive, MARC takes comfort that most of these borrowings have specific take-out source from the Group’s individual development projects.