MARC has affirmed its MARC-1(bg) and AAA(bg) ratings of Bluwater Developments Berhad’s (Bluwater) (formerly known as Mines Resort Berhad) short- and long-term ratings of its RM47 million Bank Guaranteed Commercial Papers (CPs) and RM130 million Bank Guaranteed Serial Bonds (Bonds) respectively. The ratings carry a stable outlook. The affirmed ratings and outlook are underpinned by the unconditional and irrevocable bank guarantee provided by Malayan Banking Berhad (Maybank), the country’s largest bank. Maybank’s AAA rating is premised on its dominant domestic market position, its sound financial profile supported by the strong quality of its assets, and its superior earnings and capital generation capacity.

Since MARC’s last rating action on Bluwater, there has been a proposed change in the ownership structure of the company. The current owners of privately-held developer of the Mines Resort City have entered into a conditional share sale agreement with a domestic property developer, Clearwater Group. The company has had a name change to reflect a repositioning of its former South Lake development (which has since been renamed Bluwater Estate), as an environmentally friendly luxury living development. Its fully completed Heritage and the Lake Homes developments which were previously marketed as part of the former South Lake development are registering lower than expected average take-up rates. As of June 30, 2008, both developments have generated total sales of RM299.3 million with future expected billings from contracted sales of RM34.4 million. Reflective of the weaker demand, Bluwater recorded a 34.3% drop in revenue to RM65.9 million and an even larger 82.8% contraction in pre-tax profit to RM3.2 million for unaudited financial year ended February 28, 2008 (FY2008). 

The masterplan of Bluwater Estate involves the development of lakeview bungalows, semi-detached homes, medium and high rise condominiums on a 100 hectare site. The upscale project which has an estimated gross development value (GDV) of RM3.0 billion is expected to be developed over an eight-year period in phases. Apart from domestic house buyers, it is also targeting investors from Europe and Asia Pacific. The cash flow generated from Bluwater Estate development, which has a remaining GDV of RM2.8 billion as of June 30, 2008, will fund debt service obligations under the rated issuances in addition to proceeds from sales of identified properties from the Heritage, a project adjacent to the Bluwater Estates. The Heritage consists of five residential serviced apartment blocks, office and commercial buildings.

Notwithstanding, MARC believes that significant uncertainties remain in relation to the future operating performance of Bluwater, particularly with respect to the success of its repositioning and pricing strategies. Furthermore, the property developer continues to face a difficult operating environment and it is unclear when demand will see meaningful recovery. Based on its monitoring accountants’ report, Bluwater remained in compliance with its financial covenants in FY2008, its minimum required debt service cover ratio (DSCR) of 1.5 times and its maximum gearing ratio of 9.0 times. Its operating cashflow, meanwhile, deteriorated to a deficit of RM42.7 million mainly attributable to increased working capital requirements. Bluwater’s gearing of 1.44 times as at end-FY2008, remains high relative to its earnings and cash flow generating capacity.

The company met its third bond redemption of RM20 million in June 2008, mainly funded by sales of office block. The current outstanding balances of the bonds and CPs stand at RM40 million and RM25 million respectively, following the recent redemption of CPs amounting to RM12 million on June 19, 2009 and fourth bond redemption of RM30 million on June 26, 2009.  

MARC believes that the future direction of Bluwater’s stand alone creditworthiness will be driven by the performance of Bluwater Estate developments as well as changes in the operating and financial policies of the company under its new owners following successful acquisition of the company by the Clearwater Group. 

Contacts:
Elea Nor Zainal, 03-2090 2263/ elea@marc.com.my.