Friday, Sep 07, 2001
Malaysian Rating Corporation Berhad (MARC) has affirmed Talam Corporation Berhad’s (Talam) RM150 million secured bonds rating at A (single A flat). The affirmation of the rating reflects the strength of the issue structure that is secured by a property development project, the Saujana Puchong Project, which forms the primary source of repayment of the bonds issue. In addition, the favourable performance of this project and the specific assignment of the sales proceeds, redemption account and rental income from Talam’s commercial buildings to the trustee continue to afford further protection to bondholders. The rating however, continues to be moderated by Talam’s tight liquidity position and the Group’s exposure to adverse developments in the property market.
Based on its favourable performance to date, MARC continues to believe that market demand for this project is sustainable given the large residential component. As at 1 July 2001, a total of 11 phases of development have been launched with six phases recording 100% sales and another one nearing that target. Aggregate sales have reached RM421 million (80% of total gross development value [GDV] launched) as compared to RM367 million when the bonds were first rated in August 2000. As confirmed by the Security Agent, the credit balance in the sinking fund account (SFA) stood at RM31.0 million as at the same date with another credit balance of RM9.2 million in the Housing Developers Account (HDA).
The RM31.0 million credit balance alone essentially covers 78% of the first scheduled RM40 million instalment, which is only due in 2003. Market risk of the project is mitigated by the locked-in sales recorded to date.
Refinancing risk is addressed by the serial nature of the bonds with different maturity profile. Liquidity risk is mitigated with the requirement for a liquidity buffer in the redemption account equivalent to 15% of the subsequent year’s instalment, if the actual cashflow meets the projection. With the redemption sum set at 20% of the sales price for each unit sold, the amount of liquidity buffer would rise in the event of an accelerated development of certain phases. This would essentially protect the bondholders’ interests particularly in respect of the longer dated bonds. Investment risk is also addressed, as monies in the redemption account will only be invested in government treasury bills/securities and fixed deposits with financial institutions.
The investment income in the redemption account and rental income from Menara Maxisegar and Pandan Kapital will be utilized to meet coupon payments. The rental stream from these commercial buildings would, however, be exposed to the credit risk of tenants and risk of tenancy migration. These setbacks are however mitigated as cashflow from the Saujana Puchong project will be used to absorb the shortfall, if need be.
Talam’s financial performance during the year improved tremendously with turnover increasing by 14.5% to RM567.4 million and its pre-tax profit leaping by 81.6% to RM53.3 million. Following this, most if not all profitability measures have improved. Under the issue structure, the debt-equity ratio was initially capped at 1.5x. In view of the ongoing Group corporate restructuring exercise, a bondholders’ meeting was held on August 22, 2001 and the bondholders have consented to the increase in debt-equity cap to 2.5x.
Whilst MARC acknowledges the higher gearing level, these debts have specific take-out source from the Group’s individual development projects. In addition, the total bonds size will also be progressively reduced over the term of the facility. While Talam’s overall liquidity position is tight, the Group nevertheless has an aggregate of RM735 million in remaining billings from various development projects as at 15 July 2001. MARC continues to believe that the Group’s property development activities will continue to exert a strain on its free cashflow position. The bondholders’ interests however, continue to be protected under the issue structure, with the source of repayment of the bonds issue to be derived from the sales proceeds of the Saujana Puchong project which is currently performing well.
Based on its favourable performance to date, MARC continues to believe that market demand for this project is sustainable given the large residential component. As at 1 July 2001, a total of 11 phases of development have been launched with six phases recording 100% sales and another one nearing that target. Aggregate sales have reached RM421 million (80% of total gross development value [GDV] launched) as compared to RM367 million when the bonds were first rated in August 2000. As confirmed by the Security Agent, the credit balance in the sinking fund account (SFA) stood at RM31.0 million as at the same date with another credit balance of RM9.2 million in the Housing Developers Account (HDA).
The RM31.0 million credit balance alone essentially covers 78% of the first scheduled RM40 million instalment, which is only due in 2003. Market risk of the project is mitigated by the locked-in sales recorded to date.
Refinancing risk is addressed by the serial nature of the bonds with different maturity profile. Liquidity risk is mitigated with the requirement for a liquidity buffer in the redemption account equivalent to 15% of the subsequent year’s instalment, if the actual cashflow meets the projection. With the redemption sum set at 20% of the sales price for each unit sold, the amount of liquidity buffer would rise in the event of an accelerated development of certain phases. This would essentially protect the bondholders’ interests particularly in respect of the longer dated bonds. Investment risk is also addressed, as monies in the redemption account will only be invested in government treasury bills/securities and fixed deposits with financial institutions.
The investment income in the redemption account and rental income from Menara Maxisegar and Pandan Kapital will be utilized to meet coupon payments. The rental stream from these commercial buildings would, however, be exposed to the credit risk of tenants and risk of tenancy migration. These setbacks are however mitigated as cashflow from the Saujana Puchong project will be used to absorb the shortfall, if need be.
Talam’s financial performance during the year improved tremendously with turnover increasing by 14.5% to RM567.4 million and its pre-tax profit leaping by 81.6% to RM53.3 million. Following this, most if not all profitability measures have improved. Under the issue structure, the debt-equity ratio was initially capped at 1.5x. In view of the ongoing Group corporate restructuring exercise, a bondholders’ meeting was held on August 22, 2001 and the bondholders have consented to the increase in debt-equity cap to 2.5x.
Whilst MARC acknowledges the higher gearing level, these debts have specific take-out source from the Group’s individual development projects. In addition, the total bonds size will also be progressively reduced over the term of the facility. While Talam’s overall liquidity position is tight, the Group nevertheless has an aggregate of RM735 million in remaining billings from various development projects as at 15 July 2001. MARC continues to believe that the Group’s property development activities will continue to exert a strain on its free cashflow position. The bondholders’ interests however, continue to be protected under the issue structure, with the source of repayment of the bonds issue to be derived from the sales proceeds of the Saujana Puchong project which is currently performing well.