Tuesday, Nov 26, 2002
Malaysian Rating Corporation Berhad (MARC) has affirmed the long-term Islamic corporate debt rating of A-ID (A minus, Islamic Debt Securities) of Puncak Alam Housing Sdn Bhd’s (PAH) RM75 million Al-Bai Bithaman Ajil Islamic Debt Securities (BaIDS) facility.
The rating affirmation reflects the strength of the underlying issue structure, with the BaIDS issue backed by secured sales from specific property development projects. Other positive features of the issue structure include minimum security coverage of 2.50 times the total BaIDS outstanding; build up of funds in a Sinking Fund Account (SFA); and maintenance of an additional liquidity buffer in a reserve account. The rating is, however, moderated by Puncak Alam Housing Sdn Bhd’s (PAH) high debt leverage and its vulnerability to adverse developments in the local property market.
Incorporated in May 1993 as a wholly owned subsidiary of Windstedt Holdings Sdn Bhd, PAH is principally involved in property development. Its maiden project, known as Bandar Baru Puncak Alam, covers an area of 3,115 acres, located about 12km to the west of Bandar Baru Sungai Buloh, Selangor D.E.
The RM75 million BaIDS issue is backed by secured sales equivalent to a minimum of 2.50 times security coverage under phases II and III of the project. This provides adequate security coverage to the BaIDS’ holders and substantially mitigates their exposure to the full market risk of the developments.
Bandar Baru Puncak Alam is planned as an integrated self-contained township covering a total area of over 14,000 acres. PAH holds the development rights in respect of 3,115 acres. The current development, over an area of 606 acres, is divided into three phases, comprising entirely of residential properties. Sales performance for phases II and III have been fairly impressive with current take-up rate of 94% for both phases. The aggregate amount billed for both phases as at 30 September 2002 stood at RM441.02 million, with remaining billings of RM145.19 million, representing about 3.10 times the size of the outstanding BaIDS issue [after netting-off the Sinking Fund Account (SFA) balance to date].
To date, two of the five zones under phase II have been completed and handed over, while the other three zones are expected to be completed between October 2002 and June 2003 respectively. As for phase III, out of ten sub-phases launched, five have been completed and handed over while the remaining five are scheduled to be completed between October 2002 and June 2003 respectively. Like many developers/contractors, PAH is affected by the Federal Government’s recent rulings on illegal foreign workers; completion of zone A of phase II and sub-phase 3B-F of phase III have been delayed by three months to March and June 2003 respectively. This has consequently affected PAH’s billings, and as a result, the company has submitted a request to the Facility Agent to vary the monthly minimum deposits in the SFA account. MARC believes that the proposed revision in the SFA will not impair the rating; as at 30 September 2002, the balance in the SFA stood at RM28.159 million, slightly above the required minimum cumulative balance of RM28 million. The balance is more than sufficient to meet the second instalment payment stipulated in the redemption schedule of RM27.625 million (including secondary note payment of RM2.625 million) in December 2002.
Despite the labour shortage problem faced by PAH, MARC believes that construction risk is manageable given the non-complex nature and the varying stages of completion (23%–100%) of the construction works for the respective zones/sub-phases under phases II and III. Moreover, with the project funding being controlled by the Security Agent, who acts as a joint signatory to all operating accounts, the completion of the assigned property units is somewhat assured. Credit risk is spread over a large number of purchasers who have secured end-financing facilities either from financial institutions or the government.
The serial nature of the BaIDS facility reduces refinancing risk at the final maturity of the issue. Liquidity support under the issue structure is provided by the gradual build up of funds in the SFA for the purpose of meeting the scheduled redemptions under the BaIDS. Any shortfall in the account shall be covered by the transfer of funds from a Finance Service Reserve Account that holds an additional liquidity buffer equivalent to the respective secondary note payments.
PAH’s revenue is mainly contributed by property development activities at Puncak Alam, both from its own development projects as well as from joint venture projects with Road Builders (M) Sdn Bhd. For fiscal year December 2001, the company posted a revenue of RM214.56 million (including joint venture revenue of RM96.98 million), up by almost 41% against RM152.54 million reported in the preceding year. Debt leverage, though still high, has improved to 3.41 times from 5.85 times previously, within the covenanted debt-to-equity cap of 3.50 times imposed under the issue structure as at FYE 2001. MARC expects the debt-to-equity ratio to improve in the near term after the redemption of series I of the BaIDS issue of RM25 million in December 2002. And with no major capital expenditure planned in the near to medium term, PAH’s liquidity position would also improve. Funds set aside out of the collections of progress billings (to meet the minimum balance requirement in the SFA) provide a degree of protection to BaIDS’ holders.
The rating affirmation reflects the strength of the underlying issue structure, with the BaIDS issue backed by secured sales from specific property development projects. Other positive features of the issue structure include minimum security coverage of 2.50 times the total BaIDS outstanding; build up of funds in a Sinking Fund Account (SFA); and maintenance of an additional liquidity buffer in a reserve account. The rating is, however, moderated by Puncak Alam Housing Sdn Bhd’s (PAH) high debt leverage and its vulnerability to adverse developments in the local property market.
Incorporated in May 1993 as a wholly owned subsidiary of Windstedt Holdings Sdn Bhd, PAH is principally involved in property development. Its maiden project, known as Bandar Baru Puncak Alam, covers an area of 3,115 acres, located about 12km to the west of Bandar Baru Sungai Buloh, Selangor D.E.
The RM75 million BaIDS issue is backed by secured sales equivalent to a minimum of 2.50 times security coverage under phases II and III of the project. This provides adequate security coverage to the BaIDS’ holders and substantially mitigates their exposure to the full market risk of the developments.
Bandar Baru Puncak Alam is planned as an integrated self-contained township covering a total area of over 14,000 acres. PAH holds the development rights in respect of 3,115 acres. The current development, over an area of 606 acres, is divided into three phases, comprising entirely of residential properties. Sales performance for phases II and III have been fairly impressive with current take-up rate of 94% for both phases. The aggregate amount billed for both phases as at 30 September 2002 stood at RM441.02 million, with remaining billings of RM145.19 million, representing about 3.10 times the size of the outstanding BaIDS issue [after netting-off the Sinking Fund Account (SFA) balance to date].
To date, two of the five zones under phase II have been completed and handed over, while the other three zones are expected to be completed between October 2002 and June 2003 respectively. As for phase III, out of ten sub-phases launched, five have been completed and handed over while the remaining five are scheduled to be completed between October 2002 and June 2003 respectively. Like many developers/contractors, PAH is affected by the Federal Government’s recent rulings on illegal foreign workers; completion of zone A of phase II and sub-phase 3B-F of phase III have been delayed by three months to March and June 2003 respectively. This has consequently affected PAH’s billings, and as a result, the company has submitted a request to the Facility Agent to vary the monthly minimum deposits in the SFA account. MARC believes that the proposed revision in the SFA will not impair the rating; as at 30 September 2002, the balance in the SFA stood at RM28.159 million, slightly above the required minimum cumulative balance of RM28 million. The balance is more than sufficient to meet the second instalment payment stipulated in the redemption schedule of RM27.625 million (including secondary note payment of RM2.625 million) in December 2002.
Despite the labour shortage problem faced by PAH, MARC believes that construction risk is manageable given the non-complex nature and the varying stages of completion (23%–100%) of the construction works for the respective zones/sub-phases under phases II and III. Moreover, with the project funding being controlled by the Security Agent, who acts as a joint signatory to all operating accounts, the completion of the assigned property units is somewhat assured. Credit risk is spread over a large number of purchasers who have secured end-financing facilities either from financial institutions or the government.
The serial nature of the BaIDS facility reduces refinancing risk at the final maturity of the issue. Liquidity support under the issue structure is provided by the gradual build up of funds in the SFA for the purpose of meeting the scheduled redemptions under the BaIDS. Any shortfall in the account shall be covered by the transfer of funds from a Finance Service Reserve Account that holds an additional liquidity buffer equivalent to the respective secondary note payments.
PAH’s revenue is mainly contributed by property development activities at Puncak Alam, both from its own development projects as well as from joint venture projects with Road Builders (M) Sdn Bhd. For fiscal year December 2001, the company posted a revenue of RM214.56 million (including joint venture revenue of RM96.98 million), up by almost 41% against RM152.54 million reported in the preceding year. Debt leverage, though still high, has improved to 3.41 times from 5.85 times previously, within the covenanted debt-to-equity cap of 3.50 times imposed under the issue structure as at FYE 2001. MARC expects the debt-to-equity ratio to improve in the near term after the redemption of series I of the BaIDS issue of RM25 million in December 2002. And with no major capital expenditure planned in the near to medium term, PAH’s liquidity position would also improve. Funds set aside out of the collections of progress billings (to meet the minimum balance requirement in the SFA) provide a degree of protection to BaIDS’ holders.