MARC has placed PECD Berhad’s (PECD) RM200 million Serial Fixed Rate Bonds Programme’s rating on MARCWatch with an outlook change from stable to negative. The rating action follows from MARC’s announcement that the long and short term ratings of PECD’s 70% owned subsidiary Peremba Jaya Holdings Sdn Bhd’s (PJHSB) RM200 million Murabahah Underwritten Notes Issuance Facility / Murabahah Medium Term Notes (MUNIF/MMTN) have been downgraded to BBB- ID and MARC-3 ID respectively following revelations that PJHSB has been served with notices of termination by Putrajaya Holdings Sdn Bhd (PjH) on its Government Quarters Contracts.

PECD is listed on the Main Board of Bursa Malaysia. It is a local construction company with twenty years of experience and has also diversified into engineering, procurement, construction and commissioning (EPCC) in the oil and gas sector in addition to property development

PJHSB, which is 70% owned by PECD with the remaining 30% owned 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 have been 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 principal repayment source for the redemption of the MUNIF/MMTN issued.

In related developments PJHSB has advised that they have appealed to PjH for a retraction of the termination 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 PJHSB’s facility to default status. 

MARC views the above developments with concern and will continue to monitor the developments affecting PJHSB and the ensuing impact on PECD. Any rating implications will be advised in due course.