Wednesday, Aug 28, 2002
MARC has raised the ratings on MK Land Berhad’s (MK Land) tranche 1 and tranche 2 serial bonds to A from A-. The upgrades reflect the group’s ability to improve its financial profile and the strength of the underlying issue structure in which secured sales have been earmarked for the redemption of the bond issues. Positive features of the issue structure include a minimum security coverage of 1.43 times the total bonds outstanding, maintenance of a minimum balance in a sinking fund account (SFA) and a six-month debt service liquidity buffer. The impressive take up rates from the Damansara Damai (DDamai) and Damansara Perdana (DPerdana) projects resulted in an increase in security coverages to 1.85 times and 2.89 times respectively. The ratings, however, continue to be moderated by the vulnerability of the projects to adverse developments in the local property market.
Prior to a reverse take-over exercise, MK Land was principally involved in the manufacturing of biscuits, wholesale and distribution of food stuff (under the name of Perfect Food Industries) and property dealing and development. The MK Land group is currently engaged in the property development, hotel and resort operations and provision of property maintenance services. In June 2002, the group’s presence in the property development business was further strengthened with the acquisition of four property companies including Saujana Triangle Sdn Bhd (STSB). Following these acquisitions, the group’s total approved land bank increased to 5,261 acres with an expected GDV of RM17 billion over the next 10 years.
Tranche 1 bonds of RM150 million was drawndown in August 2001. With the acquisition of STSB now completed, MK Land plans to issue tranche 2 bonds of RM150 million in September 2002, mainly to refinance existing bank borrowings and for working capital. Sales performance to date has been quite impressive, with average take up rates of 92.4% and 83.3% of total GDV for DDamai and DPerdana projects respectively. From the total sales of RM1.76 billion as at 30 June 2002, total progress billings amounted to RM1.1 billion, out of which 95% or RM1.05 billion has been collected. As at the same date, secured sales from DDamai and DPerdana projects provide security coverages of 1.85 times and 2.89 times respectively, above the minimum security coverage of 1.43 times. Sales from the DDamai project can be used to top-up any deficiency in security coverage for tranche 2 in the event sales from the DPerdana project are insufficient, and vice versa. The collective security coverage stood at 2.37 times. This provides adequate security coverage to bondholders, substantially minimizing market risk. In addition, market demand is expected to be sustainable given the strategic locations of the developments and a well mix of property types.
Credit risk is considered minimal, spread over a large number of purchasers. About 95% and 67% of purchasers of DDamai and DPerdana properties respectively have secured end-financing facilities from financial institutions/the government.
Investment risk is also mitigated, as funds in the SFA will only be invested in government treasury bills/securities, fixed deposits with licensed financial institutions and private debt securities carrying at least AA- (double A minus) ratings or its equivalent. Refinancing risk is mitigated with the requirement for a gradual accumulation of funds in the SFA.
MK Land’s revenue increased to RM464 million in FY2001 from RM420 million in the previous corresponding period due to impressive take up rates from its property developments. Consequently, profit margin improved to 17.0% in FY2001 from 15.4% previously.
The Group’s debt-equity ratio remains stable at around one time for the last three years. The proforma debt-equity ratio is expected to increase to 1.36 times after the issuance of tranche 2 bonds. The Group’s debt leverage is capped at 2.50 times under the terms of the serial bonds.
Prior to a reverse take-over exercise, MK Land was principally involved in the manufacturing of biscuits, wholesale and distribution of food stuff (under the name of Perfect Food Industries) and property dealing and development. The MK Land group is currently engaged in the property development, hotel and resort operations and provision of property maintenance services. In June 2002, the group’s presence in the property development business was further strengthened with the acquisition of four property companies including Saujana Triangle Sdn Bhd (STSB). Following these acquisitions, the group’s total approved land bank increased to 5,261 acres with an expected GDV of RM17 billion over the next 10 years.
Tranche 1 bonds of RM150 million was drawndown in August 2001. With the acquisition of STSB now completed, MK Land plans to issue tranche 2 bonds of RM150 million in September 2002, mainly to refinance existing bank borrowings and for working capital. Sales performance to date has been quite impressive, with average take up rates of 92.4% and 83.3% of total GDV for DDamai and DPerdana projects respectively. From the total sales of RM1.76 billion as at 30 June 2002, total progress billings amounted to RM1.1 billion, out of which 95% or RM1.05 billion has been collected. As at the same date, secured sales from DDamai and DPerdana projects provide security coverages of 1.85 times and 2.89 times respectively, above the minimum security coverage of 1.43 times. Sales from the DDamai project can be used to top-up any deficiency in security coverage for tranche 2 in the event sales from the DPerdana project are insufficient, and vice versa. The collective security coverage stood at 2.37 times. This provides adequate security coverage to bondholders, substantially minimizing market risk. In addition, market demand is expected to be sustainable given the strategic locations of the developments and a well mix of property types.
Credit risk is considered minimal, spread over a large number of purchasers. About 95% and 67% of purchasers of DDamai and DPerdana properties respectively have secured end-financing facilities from financial institutions/the government.
Investment risk is also mitigated, as funds in the SFA will only be invested in government treasury bills/securities, fixed deposits with licensed financial institutions and private debt securities carrying at least AA- (double A minus) ratings or its equivalent. Refinancing risk is mitigated with the requirement for a gradual accumulation of funds in the SFA.
MK Land’s revenue increased to RM464 million in FY2001 from RM420 million in the previous corresponding period due to impressive take up rates from its property developments. Consequently, profit margin improved to 17.0% in FY2001 from 15.4% previously.
The Group’s debt-equity ratio remains stable at around one time for the last three years. The proforma debt-equity ratio is expected to increase to 1.36 times after the issuance of tranche 2 bonds. The Group’s debt leverage is capped at 2.50 times under the terms of the serial bonds.