Thursday, Sep 21, 2000
Malaysian Rating Corporation Berhad (MARC) has assigned a long-term rating of A-ID (single A minus Islamic debt) and a short term rating of MARC-3ID to Europlus Corporation Sdn Bhd’s (ECSB) RM250 million Al-Bai Bithaman Ajil Islamic Debt Securities (BAIDS) and RM350 million Murabahah Underwritten Notes Issuance Facility (MUNIF) respectively.
The ratings reflect the strength of the issue structure under which secured sales from specific property development projects have been earmarked for the redemption of the respective debt facilities. Positive features of the structure include security coverage of 1.43 times the total notes outstanding, separate sinking funds under each facility, maintenance of minimum balances in the sinking fund accounts and six months debt service liquidity buffer. The ratings are, however, moderated by ECSB’s high debt leverage and the group’s vulnerability to adverse developments in the property market.
ECSB is a wholly-owned subsidiary company of Europlus Berhad (Europlus) [formerly known as Larut Consolidated Berhad]. Through a share swap with Europlus, ECSB acquired six property development subsidiaries of the former.
ECSB’s RM250 million BAIDS issue is backed by RM360 million of secured sales (equivalent to 1.43 times security coverage) from the Putra Perdana and Ukay Perdana projects; substantially mitigating market risks. Sales performance to date has been impressive reflecting the good location and competitive pricing of properties. MARC believes market demand to be sustainable given the large residential component of the respective developments. Aggregate remaining billings for both projects as at end July 2000 was RM355 million.
Secured sales proceeds from five other property developments, namely Bukit Beruntung I, II & III, Sunway Perdana, Kinrara Section 3 and Pulau Melaka, will serve as the source of repayment of ECSB’s RM350 million MUNIF. And with the security coverage at 1.43 times the total notes outstanding, the MUNIFholders’ exposure is adequately covered by the secured sales, despite the above average overall market risks of the developments. The Bukit Beruntung, Sunway Perdana and Kinrara Section 3 projects will form the major revenue contributors under the MUNIF facility.
Credit risk is not concentrated; spread over a large number of purchasers, the majority of whom would have obtained end financing from financial institutions or the government. The construction and timely completion of the assigned residential units are somewhat assured with the project funding being controlled by the Security Agent, who will act as joint signatory to all operating accounts.
Separate sinking fund accounts (SFAs) will be established under the BAIDS and MUNIF facilities to capture the secured sales proceeds for the purpose of the redemption of the respective debts. The gradual accumulation of funds in the SFAs will mitigate the redemption risk under the issue structure. Withdrawal of funds from the SFAs will only be permitted if the balances in the accounts fully cover the total notes outstanding or the security coverage of 1.43 times is maintained. Funds in the MUNIF’s SFA can also be withdrawn to redeem the maturing notes over the life of the facility.
The group’s financial profile is weakened by its 2.45 times proforma debt leverage. A debt-equity cap of 2.5 times has been imposed under the issue structure. Having successfully completed its debt restructuring exercise, the group expects to emerge with an improved balance sheet.
The ratings reflect the strength of the issue structure under which secured sales from specific property development projects have been earmarked for the redemption of the respective debt facilities. Positive features of the structure include security coverage of 1.43 times the total notes outstanding, separate sinking funds under each facility, maintenance of minimum balances in the sinking fund accounts and six months debt service liquidity buffer. The ratings are, however, moderated by ECSB’s high debt leverage and the group’s vulnerability to adverse developments in the property market.
ECSB is a wholly-owned subsidiary company of Europlus Berhad (Europlus) [formerly known as Larut Consolidated Berhad]. Through a share swap with Europlus, ECSB acquired six property development subsidiaries of the former.
ECSB’s RM250 million BAIDS issue is backed by RM360 million of secured sales (equivalent to 1.43 times security coverage) from the Putra Perdana and Ukay Perdana projects; substantially mitigating market risks. Sales performance to date has been impressive reflecting the good location and competitive pricing of properties. MARC believes market demand to be sustainable given the large residential component of the respective developments. Aggregate remaining billings for both projects as at end July 2000 was RM355 million.
Secured sales proceeds from five other property developments, namely Bukit Beruntung I, II & III, Sunway Perdana, Kinrara Section 3 and Pulau Melaka, will serve as the source of repayment of ECSB’s RM350 million MUNIF. And with the security coverage at 1.43 times the total notes outstanding, the MUNIFholders’ exposure is adequately covered by the secured sales, despite the above average overall market risks of the developments. The Bukit Beruntung, Sunway Perdana and Kinrara Section 3 projects will form the major revenue contributors under the MUNIF facility.
Credit risk is not concentrated; spread over a large number of purchasers, the majority of whom would have obtained end financing from financial institutions or the government. The construction and timely completion of the assigned residential units are somewhat assured with the project funding being controlled by the Security Agent, who will act as joint signatory to all operating accounts.
Separate sinking fund accounts (SFAs) will be established under the BAIDS and MUNIF facilities to capture the secured sales proceeds for the purpose of the redemption of the respective debts. The gradual accumulation of funds in the SFAs will mitigate the redemption risk under the issue structure. Withdrawal of funds from the SFAs will only be permitted if the balances in the accounts fully cover the total notes outstanding or the security coverage of 1.43 times is maintained. Funds in the MUNIF’s SFA can also be withdrawn to redeem the maturing notes over the life of the facility.
The group’s financial profile is weakened by its 2.45 times proforma debt leverage. A debt-equity cap of 2.5 times has been imposed under the issue structure. Having successfully completed its debt restructuring exercise, the group expects to emerge with an improved balance sheet.