MARC has affirmed its stand alone ratings on Mulpha International Berhad’s (MIB) RM25.0 million Murabahah Commercial Paper/Medium Term Notes (CP/MTN) facility at MARC-1ID/AID and its supported MARC-1ID(bg)/AA-ID(bg) ratings on MIB’s RM75.0 million Bank Guaranteed (BG) Murabahah Notes Issuance Facility (MUNIF). The affirmed BG ratings reflect the lower of the financial institution ratings of Aminvestment Bank Berhad and CIMB Bank Berhad respectively, which have provided unconditional and irrevocable bank guarantees in respect of the MUNIF. The ratings carry a stable outlook.

MIB’s affirmed stand-alone ratings recognise the relatively resilient performance of its property and hospitality operations in Australia and its local property development, Leisure Farm Resort, moderate debt albeit increasing leverage, adequate liquidity, but also factors in its acquisitive strategy which increases its susceptibility to investment related impairments amid falling asset values. Meanwhile, MIB’s acquisition spending which remains substantial, continues to put pressure on free cash flow in addition to its ongoing, albeit reduced, share buyback. Also, moderating the ratings are MIB’s underperforming local property developments of Bandar Seri Ehsan (BSE) in Selangor and Taman Desa Aman (TDA) in Kedah, and weakened industry fundamentals in its key markets of Malaysia and Australia.

MIB is a listed Malaysian diversified property group which possesses a strong track record in property development and real estate investment, with operations and investments in Malaysia, Vietnam, Singapore, People’s Republic of China, Hong Kong and Australia. The group derives more than half of its revenue from its Australian operations where it has sizeable hotel and property development businesses. Despite the subdued market conditions, its property earnings have held up whilst its hospitality segment saw a fairly sharp decline in its earnings in 2008. Apart from owning and operating four five-star hotels in Australia, the group is developing Sanctuary Cove, a residential resort on Queensland’s Gold Coast and a business park in Sydney. The group also holds a 22.8% interest in Brisbane-based FKP Group (FKP). FKP which is listed on the Australian Stock Exchange, is the largest private sector owner-operator of retirement villages in Australia and New Zealand. The group’s flagship project in Malaysia is Leisure Farm Resort, a 1,765-acre residential resort development located within Iskandar Malaysia. Notwithstanding the more challenging market conditions in 2008, MIB’s property segment reported higher year-on-year unaudited revenue and segment results, with pre-tax profit rising to RM65.1 million. The group also saw improved results from its general trading operations. The hospitality segment, meanwhile, saw declines in both revenue and segmental results. The group is attempting to maintain the performance of its property segment by focusing on higher margin local residential developments and sales of exclusive residential lots in Australia. Given the overall challenging market conditions prevailing both domestically and in Australia, MARC believes that the segment may see lower than expected sales.

For the year ended December 31, 2008 (FY2008), MIB recorded an unaudited pre-tax loss of RM71.7 million (FY2007: +RM127.4 million), largely due to exceptional items totalling RM194.3 million. Of the exceptional items, RM95.6 million relates to impairment and foreign exchange losses of its investments which had resulted from reduced stock market valuations, falling asset values and a weakening of the Australian dollar against the ringgit. The balance RM98.7 million represents MIB’s equity share of impairment losses recognised by FKP mainly in respect of its properties. Excluding the exceptional items, the group’s net profit would have been largely maintained at prior year levels. Consolidated net cash generated from operations remained healthy at RM91.1 million although MARC views with some concern the continuing large cash outflows on account of investing activities which totalled over RM400 million and the use of debt to partially fund the acquisitions and investments. MIB’s debt-to-equity ratio rose to 0.53 times as at end December 2008 (FY2007: 0.38 times). Liquidity remains strong at group level with RM263.1 million cash and cash equivalents vis-à-vis short-term borrowings of RM208.9 million. As of March 10, 2009, the outstanding amount of the CP/MTN and BG MUNIF stood at RM25.0 million and RM45.0 million respectively.

The stable outlook on MIB’s stand-alone rating reflects MARC’s expectations that although revenues and earnings will likely be constrained in the near term as a result of the more challenging market conditions, its credit profile should remain consistent with its ratings. However, if the downturn in the domestic and Australian property markets is prolonged or worse than expected, the ratings could be pressured. The stable outlook also assumes that MIB will act to avoid any substantial weakening of its financial profile by limiting acquisition spending if needed.

Contacts:
Elea Nor Zainal, 03-2090 2263/ elea@marc.com.my;
Katherine Hee Cheui May, 03-2090 2273/ hcmay@marc.com.my