Monday, Jul 15, 2002
Malaysian Rating Corporation Berhad (MARC) has affirmed the long-term Islamic corporate debt rating of A-ID (A minus, Islamic Debt) and short-term Islamic corporate debt rating of MARC-3ID to Europlus Corporation Sdn Bhd’s (ECSB) RM250 million Al-Bai Bithaman Ajil Islamic Debt Securities (BaIDS) and RM350 million Murabahah Underwritten Notes Issuance Facility (MUNIF) respectively.
ECSB’s affirmed ratings reflect the strength of the issue structure, under which secured sales from specific property development projects have been earmarked for the redemption of the respective debt facilities. Positive features of the structure include minimum security coverage of 1.43 times the total notes outstanding, separate sinking funds under each facility, scheduled build-up of funds in the sinking fund accounts and six months debt service liquidity buffer. The ratings are, however, moderated by ECSB’s high debt leverage and the group’s vulnerability to adverse developments in the property market.
ECSB is a wholly-owned subsidiary of Europlus Berhad (Europlus) [formerly known as Larut Consolidated Berhad]. Through a share swap with Europlus, ECSB acquired six property development subsidiaries of its parent in September 2000.
Separate sinking fund accounts (SFA) have been established under the BAIDS and MUNIF facilities to capture the secured sales proceeds for the purpose of the redemption of the respective debts. The gradual accumulation of funds in the SFAs help to mitigate the risk of redemption under the issue structure. Withdrawal of excess funds from the SFAs will only be permitted if the balances in the accounts fully cover the total notes outstanding or the security coverage of 1.43 times is maintained. Funds in the MUNIF’s SFA can also be withdrawn to redeem the maturing notes over the life of the facility.
As at end December 2001, ECSB’s RM250 million BAIDS issue was backed by RM272 million (equivalent to 1.81 times the BAIDS issue, after netting off the balance in the SFA at the same date) of total receivables from secured sales of the Putra Perdana and Ukay Perdana projects; substantially mitigating market risks. Sales performance to date of the said projects have been commendable, reflecting the good locations, large residential component of respective developments and competitive pricing of properties. Upon the full redemption of the BAIDS, ECSB undertakes to assign all remaining proceeds from both projects to the MUNIF’s SFA as additional liquidity buffer.
Secured sales proceeds from five other property developments, namely Bukit Beruntung I, II & III, Sunway Perdana, Kinrara Section 3 and Pulau Melaka, serve as the source of repayment of ECSB’s RM350 million MUNIF. The total receivable from secured sales as at year end 2001 amounted to RM494 million (equivalent to 1.47 times the MUNIF issue, after netting off the balance in the SFA). The MUNIFholders’ exposure is, thus, considered adequately covered by the secured sales, despite the slightly above average overall market risks of the developments.
Liquidity risks under the BAIDS and MUNIF issues are also somewhat mitigated through the maintenance of at least six months of debt service in the respective Debt Service Reserve Accounts. The construction and timely completion of the assigned residential units are somewhat assured with the project funding being controlled by the Security Agent, who acts as the joint signatory to all operating accounts.
ECSB posted a strong growth in pre-tax profit of 310.3% to RM52.5 million during FY2001, driven by the 175% increase in group earnings from sale of properties to RM357 million. But with the full drawdown of both the BAIDS and MUNIF issues in the recent fiscal year, the group’s debt leverage surged to 2.18 times (after adjusting for credit balances in the SFAs) from 0.62 times previously.
ECSB’s affirmed ratings reflect the strength of the issue structure, under which secured sales from specific property development projects have been earmarked for the redemption of the respective debt facilities. Positive features of the structure include minimum security coverage of 1.43 times the total notes outstanding, separate sinking funds under each facility, scheduled build-up of funds in the sinking fund accounts and six months debt service liquidity buffer. The ratings are, however, moderated by ECSB’s high debt leverage and the group’s vulnerability to adverse developments in the property market.
ECSB is a wholly-owned subsidiary of Europlus Berhad (Europlus) [formerly known as Larut Consolidated Berhad]. Through a share swap with Europlus, ECSB acquired six property development subsidiaries of its parent in September 2000.
Separate sinking fund accounts (SFA) have been established under the BAIDS and MUNIF facilities to capture the secured sales proceeds for the purpose of the redemption of the respective debts. The gradual accumulation of funds in the SFAs help to mitigate the risk of redemption under the issue structure. Withdrawal of excess funds from the SFAs will only be permitted if the balances in the accounts fully cover the total notes outstanding or the security coverage of 1.43 times is maintained. Funds in the MUNIF’s SFA can also be withdrawn to redeem the maturing notes over the life of the facility.
As at end December 2001, ECSB’s RM250 million BAIDS issue was backed by RM272 million (equivalent to 1.81 times the BAIDS issue, after netting off the balance in the SFA at the same date) of total receivables from secured sales of the Putra Perdana and Ukay Perdana projects; substantially mitigating market risks. Sales performance to date of the said projects have been commendable, reflecting the good locations, large residential component of respective developments and competitive pricing of properties. Upon the full redemption of the BAIDS, ECSB undertakes to assign all remaining proceeds from both projects to the MUNIF’s SFA as additional liquidity buffer.
Secured sales proceeds from five other property developments, namely Bukit Beruntung I, II & III, Sunway Perdana, Kinrara Section 3 and Pulau Melaka, serve as the source of repayment of ECSB’s RM350 million MUNIF. The total receivable from secured sales as at year end 2001 amounted to RM494 million (equivalent to 1.47 times the MUNIF issue, after netting off the balance in the SFA). The MUNIFholders’ exposure is, thus, considered adequately covered by the secured sales, despite the slightly above average overall market risks of the developments.
Liquidity risks under the BAIDS and MUNIF issues are also somewhat mitigated through the maintenance of at least six months of debt service in the respective Debt Service Reserve Accounts. The construction and timely completion of the assigned residential units are somewhat assured with the project funding being controlled by the Security Agent, who acts as the joint signatory to all operating accounts.
ECSB posted a strong growth in pre-tax profit of 310.3% to RM52.5 million during FY2001, driven by the 175% increase in group earnings from sale of properties to RM357 million. But with the full drawdown of both the BAIDS and MUNIF issues in the recent fiscal year, the group’s debt leverage surged to 2.18 times (after adjusting for credit balances in the SFAs) from 0.62 times previously.