MARC has upgraded Mulpha International Bhd’s (“MIB”) RM75.0 million Bank Guaranteed Murabahah Notes Issuance Facility (“MUNIF”) long-term rating from A+(bg)ID to AA-(bg)ID and has reaffirmed the short-term rating of MARC-1(bg)ID. The ratings reflect the unconditional and irrevocable bank guarantees provided by AmInvestment Bank Berhad and CIMB Bank Berhad. On a separate note, MARC has reaffirmed the ratings of AID/MARC-2ID for MIB’s RM25.0 million Murabahah Commercial Paper/ Medium Term Notes (“CP/MTN”) reflecting the company’s stronger performance in FY2005, sound investment strategies and consistent revenue from its off shore investments. The ratings, however, are moderated by the under performance of MIB’s major local property developments namely Bandar Seri Ehsan (“BSE”) and Taman Desa Aman (“TDA”). Additionally, the ratings are tempered by its vulnerability to adverse developments in both the local and foreign property markets. The ratings carry a stable outlook.

MIB’s Australian property division, the main contributor to the group’s revenue, is spearheaded by its wholly owned subsidiary, Mulpha Australia Limited (“MAL”). Through MAL’s subsidiaries, MIB has full control over a portfolio of four 5-star luxury hotels across Australia’s major cities and states. These 5-star hotels include Hayman Great Barrier Reef, InterContinental Sydney, Hilton Melbourne Airport and Hyatt Regency Sanctuary Cove. Leveraging on MAL’s experience in the Australian property market, the group looks to add choice investment properties to its current portfolio.

MIB has been reflecting a sizeable contribution in terms of profit and revenue from its Australian property division over the past six financial years. Over the same period of time, this contribution has offset losses registered by MIB’s Malaysian property division. Hence, based on MIB’s current development portfolio in both regions, Malaysia and Australia, its Australian property division’s performance will have a significant impact on the group. MIB has represented that the group’s investments in its Sanctuary Cove and Norwest Business Park developments will continue to generate revenue for the coming 8 to 10 years and 4 to 5 years respectively. Additionally MIB has recurring income from its 5-star hotels and Sanctuary Cove’s management fees in Australia which will further soften possible losses incurred by its Malaysian property division. Also in the pipeline to boost its domestic property operations are new developments to be launched in prime areas namely Menara Mulpha, a commercial building in Jalan Sultan Ismail, Kuala Lumpur; a residential development in Bangsar; and a mixed development in Section 16, Petaling Jaya.

As the primary source of repayment for the facility is expected to be derived from MIB’s Malaysian property developments, specifically its flagship developments of Leisure Farm Resort (“LFR”) in the Iskandar Development Region (“IDR”) in Johor and BSE in Sepang, Selangor, it is crucial for MIB to ensure the success of these developments. Since the last review, the performance of BSE has not met expectations. Nevertheless, LFR has outperformed projections, registering sales amounting to RM399 million (projection: RM238 million) since the development was launched. Notwithstanding the reliance on these local developments, MIB has the option of repatriating funds from its performing off shore businesses if the need arises. The company has also represented that this allows it the flexibility to develop its Malaysian property investments at its own pace thus allowing it to maximize benefits depending on market sentiment. Noteworthy, first fixed charges on both the LFR and BSE developments, as well as cash flows from other sources within the MIB group, offer added security for the issue.

Despite lower revenue registered in FY2005, MIB’s profit before tax increased by 275.3% attributable to one-off items such as gains on disposal of investments in the Sydney Opera House Car Park and Sheraton Brisbane Hotel amounting to RM129.8 million collectively followed by a gain on dilution of interest in Mulpha FKP Pty Limited (Owner of Norwest Business Park), which amounted to RM187.9 million. The inflows of cash from these one-off items have resulted in a lower gearing ratio after substantial borrowings were repaid. MIB’s 9-month interim results reflect a weaker performance for FY2006. The main reason for this is the deconsolidation of Mulpha FKP Pty Limited arising from the creation of a 50:50 joint venture (“JV”) entity between MIB and FKP Limited for the remaining development of the Norwest Business Park project.