Thursday, Nov 08, 2001
Malaysian Rating Corporation Berhad (MARC) has assigned a long-term Islamic corporate debt rating of A-ID (A minus, Islamic Debt Securities) to Puncak Alam Housing Sdn Bhd’s (PAH) RM75 million Al-Bai Bithaman Ajil Islamic Debt Securities (BaIDS) facility.
The rating 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 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 pro-forma 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 will be backed by secured sales equivalent to 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 rates of 94% and 91.4% respectively. The aggregate amount billed for both phases as at 30 June 2001 stood at RM236.04 million, with remaining billings of RM334.65 million.
The completion dates of the developments under phases II and III had been delayed due to financial difficulties faced by a number of the contractors. Nine of the eleven contractors have been terminated by PAH and the company had recently re-awarded the jobs to new contractors. MARC believes that construction risk is manageable given the non-complex nature and the varying stages of completion (2%–100%) of the construction works. 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 a Sinking Fund Account 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 first secondary note payment.
PAH’s profitability measures in fiscal 2000 were adversely affected by the combined effect of the 8% reduction in revenue and a relatively unchanged operating cost position. Debt leverage is aggressive at 5.9 times in FY2000 and is expected to deteriorate to around 6.0 times after the issuance of the BaIDS. An improvement in the debt-to-equity ratio is projected during the tenure of the BaIDS, reflecting the effect of the progressive redemption of the Islamic debt issue. And with no major capital expenditure planned in the near to medium term, PAH’s liquidity position would also improve. Funds will be set aside out of the collections of progress billings to meet the minimum balance requirement in the Sinking Fund Account; providing a degree of protection to BaIDS’ holders.
The rating 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 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 pro-forma 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 will be backed by secured sales equivalent to 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 rates of 94% and 91.4% respectively. The aggregate amount billed for both phases as at 30 June 2001 stood at RM236.04 million, with remaining billings of RM334.65 million.
The completion dates of the developments under phases II and III had been delayed due to financial difficulties faced by a number of the contractors. Nine of the eleven contractors have been terminated by PAH and the company had recently re-awarded the jobs to new contractors. MARC believes that construction risk is manageable given the non-complex nature and the varying stages of completion (2%–100%) of the construction works. 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 a Sinking Fund Account 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 first secondary note payment.
PAH’s profitability measures in fiscal 2000 were adversely affected by the combined effect of the 8% reduction in revenue and a relatively unchanged operating cost position. Debt leverage is aggressive at 5.9 times in FY2000 and is expected to deteriorate to around 6.0 times after the issuance of the BaIDS. An improvement in the debt-to-equity ratio is projected during the tenure of the BaIDS, reflecting the effect of the progressive redemption of the Islamic debt issue. And with no major capital expenditure planned in the near to medium term, PAH’s liquidity position would also improve. Funds will be set aside out of the collections of progress billings to meet the minimum balance requirement in the Sinking Fund Account; providing a degree of protection to BaIDS’ holders.