Thursday, Nov 28, 2002
The rating affirmation reflects the strength of the underlying issue structure in which secured sales from the specific property development projects have been assigned for the redemption of the BaIDS issue. Under the issue structure, Kenanga is to maintain a minimum security coverage of 1.5 times the total BaIDS outstanding, a Sinking Fund Account (SFA) with scheduled minimum balances and a six-month debt service liquidity buffer in a Finance Service Reserve Account (FSRA). The rating is, however, moderated by the company’s high debt leverage and its vulnerability to adverse developments in the local property market.
Incorporated on 15 September 2000 as a wholly owned subsidiary of Intelbest Sdn Bhd, Kenanga Wangsa Sdn Bhd (Kenanga) is principally involved in the property development. Kenanga’s two subsidiaries, Fast Crescent Sdn Bhd (Fast Crescent) and Darar Ehsan Sdn Bhd (Darar Ehsan) are currently involved in the development of residential and commercial properties at Lestari Perdana, Puchong.
Fast Crescent and Darar Ehsan were granted the right to develop 50.7 acres and 150 acres of land respectively at Lestari Perdana through separate joint-venture agreements with SAP Holdings Berhad (SAP). Sales performance to date has been promising with take-up rates exceeding 98% of gross development value (GDV) launched for both Fast Crescent’s and Darar Ehsan’s projects. As at 18 August 2002, progress billings totalled RM263.4 million from total sales of RM355.4 million. A total of RM238.8 million has been collected with remaining receivable of RM116.5 million.
The RM128 million BaIDS issue is backed by at least RM192 million of secured sales (equivalent to 1.50 times security coverage) from the developments undertaken by both Fast Crescent and Darar Ehsan at Lestari Perdana. As at 18 August 2002, the security coverage stood at 1.5 times, providing adequate security coverage to the BaIDS’ holders, substantially minimizing market risk.
The credit risk is spread over a large number of purchasers. About 88% and 79% of the units sold for Fast Crescent and Darar Ehsan developments respectively have secured end-financing facilities either from financial institutions or through Government loans. In terms of construction and completion risks, the presence of a Security Agent, who is acting as joint signatory to all projects’ operating accounts, provides some degree of confidence in ensuring the construction and timely completion of the assigned property units.
The investment risk is considered minimal as funds in the SFA can only be invested in government treasury bills/securities, fixed deposits with licensed financial institutions and at least AA-rated private debt securities.
The liquidity risk is mitigated through the requirement of gradual accumulation of funds in the SFA. The maintenance of one secondary note in the FSRA throughout the tenure of the facility provides liquidity buffer to the BaIDS’ holders.
Kenanga’s debt-equity ratio currently stood at 8.22 times, slightly better than the proforma ratio of 10.5 times. The gearing position is expected to improve gradually, due to the accumulation of funds in the SFA and retained earnings. The cash flow projection also exhibits sufficient cash flow coverage for the payment of interest and principal of the BaIDS. The anticipated continuous good take-up rates and competitive pricing strategy for both developments are expected to maintain the revenue stream for Kenanga.
Incorporated on 15 September 2000 as a wholly owned subsidiary of Intelbest Sdn Bhd, Kenanga Wangsa Sdn Bhd (Kenanga) is principally involved in the property development. Kenanga’s two subsidiaries, Fast Crescent Sdn Bhd (Fast Crescent) and Darar Ehsan Sdn Bhd (Darar Ehsan) are currently involved in the development of residential and commercial properties at Lestari Perdana, Puchong.
Fast Crescent and Darar Ehsan were granted the right to develop 50.7 acres and 150 acres of land respectively at Lestari Perdana through separate joint-venture agreements with SAP Holdings Berhad (SAP). Sales performance to date has been promising with take-up rates exceeding 98% of gross development value (GDV) launched for both Fast Crescent’s and Darar Ehsan’s projects. As at 18 August 2002, progress billings totalled RM263.4 million from total sales of RM355.4 million. A total of RM238.8 million has been collected with remaining receivable of RM116.5 million.
The RM128 million BaIDS issue is backed by at least RM192 million of secured sales (equivalent to 1.50 times security coverage) from the developments undertaken by both Fast Crescent and Darar Ehsan at Lestari Perdana. As at 18 August 2002, the security coverage stood at 1.5 times, providing adequate security coverage to the BaIDS’ holders, substantially minimizing market risk.
The credit risk is spread over a large number of purchasers. About 88% and 79% of the units sold for Fast Crescent and Darar Ehsan developments respectively have secured end-financing facilities either from financial institutions or through Government loans. In terms of construction and completion risks, the presence of a Security Agent, who is acting as joint signatory to all projects’ operating accounts, provides some degree of confidence in ensuring the construction and timely completion of the assigned property units.
The investment risk is considered minimal as funds in the SFA can only be invested in government treasury bills/securities, fixed deposits with licensed financial institutions and at least AA-rated private debt securities.
The liquidity risk is mitigated through the requirement of gradual accumulation of funds in the SFA. The maintenance of one secondary note in the FSRA throughout the tenure of the facility provides liquidity buffer to the BaIDS’ holders.
Kenanga’s debt-equity ratio currently stood at 8.22 times, slightly better than the proforma ratio of 10.5 times. The gearing position is expected to improve gradually, due to the accumulation of funds in the SFA and retained earnings. The cash flow projection also exhibits sufficient cash flow coverage for the payment of interest and principal of the BaIDS. The anticipated continuous good take-up rates and competitive pricing strategy for both developments are expected to maintain the revenue stream for Kenanga.