Wednesday, May 16, 2001
Malaysian Rating Corporation Berhad (MARC) has assigned a long-term Islamic debt rating of A-ID (A minus, Islamic Debt) to Kenanga Wangsa Sdn Bhd’s (Kenanga) RM128 million Al-Bai Bithaman Ajil with Islamic Debt Securities (BaIDS) facility.
The rating reflects the strength of the underlying issue structure, in which, secured sales from specific property development projects have been earmarked for the redemption of the BaIDS issue. Positive features of the issue structure include security coverage of 1.50 times the total BaIDS outstanding, maintenance of cumulative minimum balances in a sinking fund account (SFA) and a six-month debt service liquidity buffer. The rating, is however, moderated by Kenanga’s high proforma 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’s involvement in the property development business is supported by the acquisition of Fast Crescent Sdn Bhd (Fast Crescent) and Darar Ehsan Sdn Bhd (Darar Ehsan). These two companies are involved in the development of residential and commercial properties at Lestari Perdana, Puchong.
The RM128 million BaIDS issue will be backed by RM192 million of secured sales (equivalent to 1.50 times security coverage) from the developments undertaken by both Fast Crescent and Darar Ehsan at the Lestari Perdana project. This provides adequate security coverage to the BaIDS’ holders, substantially minimising market risk.
The Lestari Perdana project is located approximately 35 kilometres to the south west of Kuala Lumpur city centre and is accessible via a network of highways, including the Lebuhraya Damansara Puchong (LDP), the Kuala Lumpur-Seremban highway (through Jalan Sg. Besi), the Kesas highway and the Seri Kembangan road. The 1,000-acre development project involves various residential and commercial properties, which are jointly undertaken by a few developers. Through separate joint-venture agreements executed with SAP Holdings Berhad (SAP), Fast Crescent and Darar Ehsan were given the right to develop 50.7 acres and 150 acres of land respectively at Lestari Perdana. Sales performance for both Fast Crescent’s and Darar Ehsan’s projects have been fairly impressive with take-up rates of 81.8% and 81.6% of gross development value (GDV) launched respectively. Total collective amount billed for both developments as at 11 February 2001 stood at RM66.8 million, with remaining billings of RM179.9 million.
The credit risk is not concentrated and is well spread over a large number of purchasers, where 84% and 69% 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. The presence of a Security Agent, who will act as joint signatory to all projects’ operating accounts, provides a degree of confidence in ensuring the construction and timely completion of the assigned property units.
The investment risk is also considered minimal, as funds in the SFA will 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 establishment of two levels of liquidity protection in the issue structure. The first level is the requirement for a gradual accumulation of funds in the SFA. The second level is the secondary note liquidity buffer maintained in the Finance Service Reserve Account (FSRA) whereby Kenanga is required to maintain funds equivalent to one secondary note throughout the tenure of the facility.
Kenanga’s proforma debt-equity position would be as high as 10.49 times upon the issuance of the BaIDS, but the gearing position is expected to improve gradually to 6.97 times and 3.44 times by the 12th and 24th month respectively from the issuance date (after netting off the balance in the SFA). The good take-up rates and competitive pricing strategy for both developments are expected to result in a steady and highly predictable revenue stream for Kenanga, giving rise to strong cash flow protection.
The rating reflects the strength of the underlying issue structure, in which, secured sales from specific property development projects have been earmarked for the redemption of the BaIDS issue. Positive features of the issue structure include security coverage of 1.50 times the total BaIDS outstanding, maintenance of cumulative minimum balances in a sinking fund account (SFA) and a six-month debt service liquidity buffer. The rating, is however, moderated by Kenanga’s high proforma 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’s involvement in the property development business is supported by the acquisition of Fast Crescent Sdn Bhd (Fast Crescent) and Darar Ehsan Sdn Bhd (Darar Ehsan). These two companies are involved in the development of residential and commercial properties at Lestari Perdana, Puchong.
The RM128 million BaIDS issue will be backed by RM192 million of secured sales (equivalent to 1.50 times security coverage) from the developments undertaken by both Fast Crescent and Darar Ehsan at the Lestari Perdana project. This provides adequate security coverage to the BaIDS’ holders, substantially minimising market risk.
The Lestari Perdana project is located approximately 35 kilometres to the south west of Kuala Lumpur city centre and is accessible via a network of highways, including the Lebuhraya Damansara Puchong (LDP), the Kuala Lumpur-Seremban highway (through Jalan Sg. Besi), the Kesas highway and the Seri Kembangan road. The 1,000-acre development project involves various residential and commercial properties, which are jointly undertaken by a few developers. Through separate joint-venture agreements executed with SAP Holdings Berhad (SAP), Fast Crescent and Darar Ehsan were given the right to develop 50.7 acres and 150 acres of land respectively at Lestari Perdana. Sales performance for both Fast Crescent’s and Darar Ehsan’s projects have been fairly impressive with take-up rates of 81.8% and 81.6% of gross development value (GDV) launched respectively. Total collective amount billed for both developments as at 11 February 2001 stood at RM66.8 million, with remaining billings of RM179.9 million.
The credit risk is not concentrated and is well spread over a large number of purchasers, where 84% and 69% 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. The presence of a Security Agent, who will act as joint signatory to all projects’ operating accounts, provides a degree of confidence in ensuring the construction and timely completion of the assigned property units.
The investment risk is also considered minimal, as funds in the SFA will 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 establishment of two levels of liquidity protection in the issue structure. The first level is the requirement for a gradual accumulation of funds in the SFA. The second level is the secondary note liquidity buffer maintained in the Finance Service Reserve Account (FSRA) whereby Kenanga is required to maintain funds equivalent to one secondary note throughout the tenure of the facility.
Kenanga’s proforma debt-equity position would be as high as 10.49 times upon the issuance of the BaIDS, but the gearing position is expected to improve gradually to 6.97 times and 3.44 times by the 12th and 24th month respectively from the issuance date (after netting off the balance in the SFA). The good take-up rates and competitive pricing strategy for both developments are expected to result in a steady and highly predictable revenue stream for Kenanga, giving rise to strong cash flow protection.