MARC has extended the MARCWatch Negative on the BBB+ rating of property developer MK Land Holdings Berhad’s (MK Land) RM300 million Serial Bonds which was placed on MARCWatch on 7 May 2008. MK Land had previously sought the indulgence of bondholders to defer original scheduled payments into the sinking fund account (SFA) for the purpose of redeeming the RM120 million outstanding Bonds. 

Since MARC’s previous rating action, MK Land has obtained bondholders’ indulgence to defer its SFA payments. The rating continues to remain on MARCWatch Negative as a result of a lack of clarity on how it aims to meet its financial obligations. MK Land’s Tranche 1 repayment obligation on 29 August 2008 of RM60.0 million requires RM30 million to be put into SFA by 25 August 2008.

The trustee has confirmed that the balance in the SFA and Coupon Service Account (CSA) for Tranche 1 bonds as at to date amounted to RM46.89 million (excluding interest earned). The balance is expected to be sourced from a short term bank loan granted to a subsidiary, Saujana Triangle Sdn Bhd which has yet to be drawn down.

As for Tranche 2 bonds,  for which a scheduled principal payment of RM60 million is due on June 13, 2009, MK Land expects the source of funds to come mainly from disposal of land parcels and proceeds from unsold units. But based on the nine-month results ended 31 March 2008, MK Land recorded a significant drop of 53.2% in revenue to RM118.8 million and over 100% in pre-tax loss to RM11.7 million compared to the previous nine-month corresponding period, which suggests diminished prospects for a near-term recovery in operating performance. 

The rating on MK Land is currently under pressure and could be lowered if the group’s liquidity and its operating performance continues to weaken. MARC will closely monitor initiatives taken by MK Land to address its current challenges.