Tuesday, Feb 14, 2006
Peremba Jaya Holdings Sdn Bhd’s (PJHSB) RM200 million Murabahah Underwritten Notes Issuance Facility (MUNIF)/ Murabahah Medium-Term Notes (MMTNs) facility’s long-term rating has been downgraded to A-ID from AID whilst the short term rating is affirmed at MARC-2ID. The ratings have also been placed on MARCWatch with a Negative Outlook. The rating actions reflect the group’s thinning margins, tight liquidity position and high debt leverage level arising from construction delays and high receivables outstanding from Putrajaya Holdings Sdn Bhd (“Putrajaya Holdings”). It also reflects the uncertainty surrounding the finalising of the pricing agreement on Contract D with Putrajaya Holdings; which is one of the sources of repayment of the MUNIF/MMTN facility.
PJHSB is currently the developer for Precinct 11, Putrajaya which with an area of 1,056 acres, is the largest residential zone in Putrajaya. PJHSB is to develop a total of 9,056 residential units and 20 acres of commercial land in Precinct 11 by 2012, including 5,269 units of government quarters. The completed government quarters will be delivered and handed over to Putrajaya Holdings at a preferred price, in return for which PJHSB would have the exclusive right to develop and sell residential and commercial properties in Precinct 11 to the public.
To date, PJHSB had completed 2,096 residential units comprising 104 public units and 1,992 government quarters units under Contract A. It is currently developing another 1,850 units under Contracts B and C which were expected to be completed in 2005, but experienced delays in construction. Another 1,427 units of government quarters will be developed under Contract D, which has not commenced construction as pricing negotiations are still underway. Under the security arrangement, specific assignments of proceeds in respect of the government quarters contracts (for Contracts B, C and D) under Precinct 11 will serve as the funding source for the redemption of the notes issued.
The delay in construction was due to differences in the interpretation of PJHSB’s certified progress billings between the appointed architects and Putrajaya Holdings for certification of works done; which in turn delayed the certification and payment of progress claims by the latter. Additionally, Putrajaya Holdings also revised the final 5% milestone payments which resulted in them holding back the abovementioned sum for a further 24 months as against payments upon certification of fitness (“CF”) under the earlier terms. These developments affected PJHSB’s liquidity position, in turn causing delays in the group’s construction schedule. Consequently, debt leverage has been increasing over the past two years driven by increasing short term borrowings to bridge the liquidity gap. In August 2005, PJHSB’s major shareholder, PECD Berhad advanced RM50.0 million to the company which helped lower and contain the debt-equity ratio within the covenanted level. As at December 2005, the debt-equity ratio (including shareholders’ advances) stood at 2.1 times based on unaudited 12-months’ results.
PJHSB’s cash flow position continues to be weak due to committed cash outlays for the construction of Contracts B and C coupled with the high receivables outstanding from Putrajaya Holdings. Moving forward, cash inflows from the public units are expected to help sustain the company’s liquidity position in the near term whilst the signing of Contract D should add some certainty to PJHSB’s future cash flow stream.
PJHSB is currently the developer for Precinct 11, Putrajaya which with an area of 1,056 acres, is the largest residential zone in Putrajaya. PJHSB is to develop a total of 9,056 residential units and 20 acres of commercial land in Precinct 11 by 2012, including 5,269 units of government quarters. The completed government quarters will be delivered and handed over to Putrajaya Holdings at a preferred price, in return for which PJHSB would have the exclusive right to develop and sell residential and commercial properties in Precinct 11 to the public.
To date, PJHSB had completed 2,096 residential units comprising 104 public units and 1,992 government quarters units under Contract A. It is currently developing another 1,850 units under Contracts B and C which were expected to be completed in 2005, but experienced delays in construction. Another 1,427 units of government quarters will be developed under Contract D, which has not commenced construction as pricing negotiations are still underway. Under the security arrangement, specific assignments of proceeds in respect of the government quarters contracts (for Contracts B, C and D) under Precinct 11 will serve as the funding source for the redemption of the notes issued.
The delay in construction was due to differences in the interpretation of PJHSB’s certified progress billings between the appointed architects and Putrajaya Holdings for certification of works done; which in turn delayed the certification and payment of progress claims by the latter. Additionally, Putrajaya Holdings also revised the final 5% milestone payments which resulted in them holding back the abovementioned sum for a further 24 months as against payments upon certification of fitness (“CF”) under the earlier terms. These developments affected PJHSB’s liquidity position, in turn causing delays in the group’s construction schedule. Consequently, debt leverage has been increasing over the past two years driven by increasing short term borrowings to bridge the liquidity gap. In August 2005, PJHSB’s major shareholder, PECD Berhad advanced RM50.0 million to the company which helped lower and contain the debt-equity ratio within the covenanted level. As at December 2005, the debt-equity ratio (including shareholders’ advances) stood at 2.1 times based on unaudited 12-months’ results.
PJHSB’s cash flow position continues to be weak due to committed cash outlays for the construction of Contracts B and C coupled with the high receivables outstanding from Putrajaya Holdings. Moving forward, cash inflows from the public units are expected to help sustain the company’s liquidity position in the near term whilst the signing of Contract D should add some certainty to PJHSB’s future cash flow stream.