MARC has affirmed its BB- rating of Olympia Industries Berhad’s (OIB) RM137,124,246 nominal value Redeemable Unsecured Loan Stocks (RULS). The rating outlook is stable. The affirmed rating incorporates OIB’s improved credit profile following the completion of its debt restructuring exercise. Since MARC’s previous rating action, OIB has regularised its financial position. The company is expected to sustain a financial profile that is consistent with its rating level, despite its vulnerability to the effects of rising construction material costs and the impact of declines in real household income on demand for property. 

OIB is an investment holding company with its subsidiaries engaged in property development, stockbroking, construction, travel agency and lotteries/number forecast. FY2007 saw a turnaround in OIB Group’s financial performance following the completion of a Group-wide restructuring scheme. Interest writebacks post-restructuring saw the Group record a pre-tax operating profit of RM568.0 million and an operating profit of RM0.7 million excluding the one-off gain from writebacks (FY2006: operating loss of RM45.0 million). The Group had previously registered operating losses since 1998. For the nine-months ended March 31, 2008, the Group recorded a 37.8% increase in turnover to RM309.7 million against the corresponding period in 2007 and a net profit of RM59.4 million mainly contributed by its well-received K-Residence Tower A development. OIB’s debt protection measures, particularly its interest coverage and debt to equity ratio have improved as a result of the conversion of debts into equity post-restructuring. Going forward, cashflows generated by its Kenny Height Developments (KHD), K-Residence projects and rental income from Menara Olympia are expected to be primary source of repayment for the RULS.

KHD, a mixed development project within the vicinity of Mont Kiara/Sri Hartamas, is currently undertaken as a 42:58 joint-venture project with Dutaland Berhad (formerly known as Mycom Berhad). The planned development of KHD carries an estimated gross development value (GDV) of RM7.7 billion, of which Parcel 2 launched in April 22, 2008 has registered total sales value of RM128.7 million with a 61% take-up rate as of April 30, 2008. The K-Residence Tower B, a 30-storey second tower consisting of service apartments, has an estimated GDV of RM442.0 million and is expected to be launched in 3Q2008. The prevailing soft market conditions pose challenges and downside risks to planned launches.

The stable outlook reflects MARC’s expectations that OIB will maintain its business and financial risk profile in the near to intermediate term aided by its leisure and property development division for which demand and profitability is more predictable. A moderation in sales momentum for its upcoming property launches and potential margin pressures arising from the recent fuel hike and rising construction material costs could, however, result in a revision of the stable rating outlook.