The long and short term ratings of Peremba Jaya Holdings Sdn Bhd’s (PJHSB) RM200 million Murabahah Underwritten Notes Issuance Facility (MUNIF)/ Murabahah Medium-Term Notes (MMTNs) have been downgraded to  BBB-ID   (BBB Minus, Islamic Debt) and MARC-3ID,  respectively with a negative outlook. The ratings remain on MARCWatch with negative implications. The rating actions stem from the disclosure by PECD Bhd (PJHSB’s holding company) on 27 November 2006 that Arif Cerah Sdn Bhd (a wholly owned subsidiary of PJHSB) has been served with notices of termination by Putrajaya Holdings Sdn Bhd (PjH) on its Government Quarters Contracts.  This raises concerns on PJHSB’s ability to meet payments under the facility.

MARC had in February 2006 downgraded PJHSB’s rating to A- ID (A minus, Islamic Debt) with the short term rating being affirmed at MARC-2 ID    and also put the ratings on MARCWatch with a negative outlook. The rating action then was premised on PJHSB’s weak financials and the continued uncertainty surrounding the finalisation of Contract D with PjH which forms one of the sources of repayment of the facility. MARC was subsequently informed that the management of PJHSB had entered into negotiations with PjH for the sale of PJHSB, as a means of easing its weak financial position and that the share sales agreement was to be executed by 30 September 2006, after protracted discussions. The said agreement has not been executed to date which has led to further pressure on the current ratings.

Following the receipt of the termination notices, PJHSB has indicated that they have appealed to PjH for a retraction of the said notices. A decision is expected from PjH on the 7 December 2006. Failure to obtain the retraction would result in an event of default under the facility agreement which will result in an immediate downgrade of the facility to default status.

PJHSB, which is 70% owned by PECD Berhad with the remaining 30% held by PjH is the developer for Precinct 11 in Putrajaya (the largest residential zone in Putrajaya), covering an area of 1,056 acres. PJHSB has completed 2,096 residential units to date comprising 104 public units and 1,992 government quarters units under Contract A with PjH. It is currently developing another 1,850 units under Contracts B and C which were expected to be completed in 2005, but are experiencing construction delays. Another 1,427 units of government quarters are to be developed under Contract D, but construction has not commenced as pricing negotiations are still on-going. Under the security arrangement, specific assignments of proceeds in respect of the government quarters contracts (for Contracts B, C and D) under Precinct 11 serve as the repayment source for the redemption of the notes issued.

MARC views the above developments with concern and will continue to monitor the developments affecting PJHSB and advise any rating implications in due course.