Wednesday, Jan 05, 2000
MARC has assigned a rating of MARC-2ID to Setia Putrajaya Sdn Bhd’s (Setia Putrajaya) RM170.0 million Murabahah Notes Issuance Facility (MuNIF). At the same time, MARC has affirmed the company’s existing RM203 million Murabahah Notes Issuance Facility/Medium-Term Notes (MuNIF/MTN) at MARC-2ID/A+ID. The ratings reflect Setia Putrajaya’s manageable construction risks given its proven ability to complete construction works in a timely manner, the certainty in sales take-up of residential units in Precinct 9 by Putrajaya Holdings Sdn Bhd (Putrajaya Holdings), its improved collection experience and restored profitability. The strong shareholder support of S P Setia Bhd (S P Setia), in terms of resources and expertise, is also recognized. The rating is also supported by the creation of sinking fund accounts to capture progress payments from Putrajaya Holdings. Offsetting these factors is the small degree of demand risk with respect to the public residential units, and the high debt burden that continues to weigh down on the company’s financial position.
Setia Putrajaya had been awarded contracts to construct key government buildings, develop Precinct 9 and other residential developments in Putrajaya. Despite its brief operating history, the company has, thus far, displayed its ability in completing its contracts in Putrajaya in a timely manner. The company has since completed the construction of the key government buildings and over 800 units of residential properties under Phase 1A of Precinct 9. Presently, development work is focused on Phases 1B and 2 of Precinct 9, comprising over 2,000 units of residential properties and 6 units of shopoffices. The company’s construction effort receives strong support from its shareholder, S P Setia, an established property developer, in terms of resources and expertise.
The en-bloc sale of 93%, 100% and 79% of the residential units in Phases 1A, 1B and 2 respectively to Putrajaya Holdings, to be reserved for the government’s employees, provide a high degree of certainty in the sales take-up; substantially mitigating market and credit risks. Although the company is subject to some market risks associated with the remaining public units, MARC believes that such risks are manageable given the strong demand for residential properties in Putrajaya. The gradual economic recovery should also help to boost the sale of residential properties.
The company’s collection experience showed a marked improvement in 1999. Progress payments from Putrajaya Holdings, currently remitted into a sinking fund account, serves to cover the redemption of the RM375 million MUNIF/MTN facility upon maturity. In September this year, the company had utilized part of the proceeds in the account to redeem and cancel RM105 million of the notes. As redeemed notes cannot be reissued, the gradual redemption of the notes over the facility period will decrease the risk to noteholders. The balance in the sinking fund account as at 6 December 1999 stood at RM69 million. Under the new RM170 million MuNIF facility, a similar sinking fund account will also be established to capture progress payments from Putrajaya Holdings with respect to the development of Phases 1B and 2. Noteholders’ interest will be protected by the assignment of progress payments from Putrajaya Holdings and a legal charge over the sinking fund account. Proceeds in the sinking fund account can only be withdrawn subject to the maintenance of a reserve amount, that ensures the build up of funds in the account.
For fiscal 1999, the company registered a pre-tax profit of RM9.7 million, compared to the RM7.8 million pre-tax loss suffered previously, on the back of higher turnover arising from the accelerated progress payments from the construction contracts. Debt leverage improved from a high of 8.8 times to 3.9 times in FY99, due to the part redemption of the RM375 million MuNIF/MTN facility in September 1999. Given the small equity base, the pro-forma debt leverage will increase to 7.0 times upon the drawdown of the RM170 million new borrowings, before falling back to above 3.0 times after the redemption of the balance of the MuNIF/MTN facility in year 2000.
Setia Putrajaya had been awarded contracts to construct key government buildings, develop Precinct 9 and other residential developments in Putrajaya. Despite its brief operating history, the company has, thus far, displayed its ability in completing its contracts in Putrajaya in a timely manner. The company has since completed the construction of the key government buildings and over 800 units of residential properties under Phase 1A of Precinct 9. Presently, development work is focused on Phases 1B and 2 of Precinct 9, comprising over 2,000 units of residential properties and 6 units of shopoffices. The company’s construction effort receives strong support from its shareholder, S P Setia, an established property developer, in terms of resources and expertise.
The en-bloc sale of 93%, 100% and 79% of the residential units in Phases 1A, 1B and 2 respectively to Putrajaya Holdings, to be reserved for the government’s employees, provide a high degree of certainty in the sales take-up; substantially mitigating market and credit risks. Although the company is subject to some market risks associated with the remaining public units, MARC believes that such risks are manageable given the strong demand for residential properties in Putrajaya. The gradual economic recovery should also help to boost the sale of residential properties.
The company’s collection experience showed a marked improvement in 1999. Progress payments from Putrajaya Holdings, currently remitted into a sinking fund account, serves to cover the redemption of the RM375 million MUNIF/MTN facility upon maturity. In September this year, the company had utilized part of the proceeds in the account to redeem and cancel RM105 million of the notes. As redeemed notes cannot be reissued, the gradual redemption of the notes over the facility period will decrease the risk to noteholders. The balance in the sinking fund account as at 6 December 1999 stood at RM69 million. Under the new RM170 million MuNIF facility, a similar sinking fund account will also be established to capture progress payments from Putrajaya Holdings with respect to the development of Phases 1B and 2. Noteholders’ interest will be protected by the assignment of progress payments from Putrajaya Holdings and a legal charge over the sinking fund account. Proceeds in the sinking fund account can only be withdrawn subject to the maintenance of a reserve amount, that ensures the build up of funds in the account.
For fiscal 1999, the company registered a pre-tax profit of RM9.7 million, compared to the RM7.8 million pre-tax loss suffered previously, on the back of higher turnover arising from the accelerated progress payments from the construction contracts. Debt leverage improved from a high of 8.8 times to 3.9 times in FY99, due to the part redemption of the RM375 million MuNIF/MTN facility in September 1999. Given the small equity base, the pro-forma debt leverage will increase to 7.0 times upon the drawdown of the RM170 million new borrowings, before falling back to above 3.0 times after the redemption of the balance of the MuNIF/MTN facility in year 2000.