MARC has affirmed the rating for Land & General Berhad’s (L&G) Redeemable Convertible Secured Loan Stocks (RCSLS) of up to RM320,962,637 at B- with negative outlook.  The rating reflects the Group’s weak competitive position, lack of financial flexibility and high debt burden owing to its current involvement in the debt restructuring scheme.  The negative outlook is premised on the security coverage ratio of below 1.0 times and the nominal amount of the RCSLS totalling RM68,129,380.98 to be redeemed on 30 July 2008, which is subject to L&G’s ability to dispose the remaining identified assets under the Asset Disposal Programme. 

The primary source of interest servicing and redemption of the RCSLS will be the proceeds from the disposal of specific assets under the Asset Disposal Programme which is to be executed over the tenure of the RCSLS.  As at 31 July 2006, L&G had redeemed a total of RM106.23 million of the RCSLS, leaving an outstanding nominal amount of RM214.73 million.  L&G is expected to settle a total redemption sum plus interest of RM71.93 million by 30 July 2007, thus leaving an outstanding nominal amount of RCSLS of RM142.80 million.  With the divestment value of the remaining assets under the restructuring scheme totalling RM123.19 million as at December 2006, this provides an estimated security coverage ratio of 0.86 times.  However, L&G may potentially realise higher gross proceeds from the asset disposals as certain assets have been steeply discounted to allow for fluctuations in their disposal values.  Nevertheless, any shortfall from the Asset Disposal Programme should be met from the business operations of L&G.   

As part of the debt restructuring scheme, the Group has hived off its non-core businesses to focus on property development.  On the property front, the Group launched a new project known as D’sara Villa in Bandar Sri Damansara in February 2006, which offered 24 bungalow lots for sale, of which 10 have been sold as at end-June 2006.  On a less positive note, the Group’s wholly-owned subsidiary, Lembah Beringin Sdn Bhd was wound up in March 2006, while the property development at Bandar Sungai Buaya has not seen any significant progress over the year under review.  

In terms of financial performance, the Group returned to the black in FY2006 with a profit before tax of RM96.4 million compared to an operating loss of RM135 million in FY2005, attributable to an increase in revenue from RM165.8 million in FY2005 to RM283.5 million in FY2006, resulting from better sales of their property development projects.  A significant portion of profit was also due to gains from disposal transactions under the Asset Disposal Programme.  However, based on the interim results (unaudited) as at 30 September 2006, the Group had slipped into the red, recording a pre-tax loss of RM11.5 million compared to a pre-tax profit of RM66.5 million as at 30 September 2005.  The loss was mainly attributable to lower revenue from its property development subsidiaries and loss of rental income following the disposal of the World Trade Centre Melbourne in July 2005.

Going forward, the viability of the L&G Group depends primarily on the successful implementation of the Asset Disposal Programme.  As most of its assets have been earmarked for the asset disposal plan, there remain minimal assets to provide any financial flexibility for L&G. Currently still in the restructuring programme, the Company will have limited capacity for borrowings for working capital purposes.