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 C ID (C, Islamic Debt) and MARC-4ID,  respectively. The ratings remain on MARCWatch with negative implications. MARC was made to understand that the termination notices served on Arif Cerah Sdn Bhd (ACSB) (a wholly owned subsidiary of PJHSB) by Putrajaya Holdings Sdn Bhd (PjH), on its Government Quarters Contracts will not be rescinded. The termination of the contracts, which form the source of repayment for the MUNIF/MMTN facility, places the issuance in a technical default position which may precipitate a call for an event of default by the underwriters or noteholders at which point an immediate downgrade of the facility to default status will ensue.

In December 2006 MARC downgraded PJHSB’s ratings to BBB-ID/MARC-3ID (BBB minus, Islamic Debt) and maintained a MARCWatch negative outlook due to the disclosure by PECD Bhd (PJHSB’s holding company) on 27 November 2006 that ACSB had been served with notices of termination on its Government Quarters Contracts which raised concerns on PJHSB’s ability to meet payments under the facility. PJHSB had consequently appealed to PjH for a retraction of the said notices.

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. Termination notices served were for the government quarters units under Contracts B and C which comprise 1,850 units which were expected to be completed in 2005, but experienced construction delays. No construction has commenced for Contract D which comprise another 1,427 units of government quarters due to the unresolved pricing negotiations.

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.

PJHSB has represented that it will be seeking legal recourse to resolve the situation. MARC views the above developments with concern and will advise any further rating implications in due course. MARC is also reviewing the effect of these developments on PECD Bhd ( the holding company of PJHSB which is currently on MARCWatch with a negative outlook) and will advise any rating implications in a separate announcement.