MARC has affirmed its bank guaranteed ratings of MARC-1ID(bg)/AA-ID(bg) on Mulpha International Berhad’s (Mulpha) RM75 million Bank Guaranteed Murabahah Notes Issuance Facility (MUNIF). The bank guaranteed ratings reflect the lower of the financial institution ratings of AmInvestment Bank Berhad and CIMB Bank Berhad, both of which have provided unconditional and irrevocable bank guarantees in respect of the MUNIF. At the same time, MARC has affirmed its standalone ratings of MARC-1ID/AID on Mulpha’s RM25 million Murabahah Commercial Paper/Medium Term Notes (CP/MTN) facility. The ratings carry a stable outlook.

The affirmed standalone ratings of Mulpha incorporate the recent weakening of its financial profile as a result of four consecutive quarters of losses beginning with the third quarter of 2008, its declining available liquidity and moderate near-term refinancing risk. Mitigating the current downward pressure on Mulpha’s credit metrics and the refinancing risk associated with a large single upcoming debt maturity at a subsidiary is its good financial flexibility and ongoing corporate fund raising exercises. Support for the ratings include the business profile of core subsidiary, Mulpha Australia Ltd (MAL), whose flagship project is the Gold Coast-based Sanctuary Cove comprising high-end property development including waterfront land sales, hospitality and tourism-related activities in Australia. MAL also owns four well-established five-star hotels in other Australian cities. MAL’s fiscal 2008 and 2009 financial performance has been affected by a more challenging operating environment. Sanctuary Cove’s property development recorded lower waterfront lot sales of 20 units in 2009 compared to 48 units in the preceding year while MAL’s hotels experienced a lower average occupancy level rate of 63% (FY2008: 66.6%) during the year.

The stable outlook on the standalone ratings reflect expectations of improvement in its total operating earnings and key financial measures in 2010, in line with improving economic conditions in Australia which should benefit Mulpha’s Australian property and hospitality operations, the mainstay of the group’s profitability. Additionally, MARC expects Mulpha to successfully refinance an A$292.4 million (RM891.8 million) loan facility maturing in June 2010 in a timely manner. The affirmed standalone ratings and outlook do not factor any headroom for any significant acquisition driven debt increases.

For nine months ended September 30, 2009 (9MFY2009), Mulpha recorded a 30.7% decline in revenue of RM436 million (9MFY2008: RM629.5 million) and loss before tax of RM105.8 million (9MFY2008: RM2.2 million). The losses stemmed mainly from RM84.0 million share of loss of equity-accounted associate, Brisbane-based FKP Property Group (FKP) and to a lesser extent, impairment losses in respect of its investments in properties. MARC understands that as a result of the significant impairment adjustments made in FY2009, the likelihood of further write-downs of this magnitude in current fiscal year has been diminished. Also contributing to Mulpha’s weaker financial performance is the deferral of several planned project launches in the Klang Valley to 2010 and 2011.    

As at end September 30, 2009, Mulpha’s debt-to-equity (DE) ratio rose marginally to 0.66 times, with total borrowings amounting to RM1.5 billion. The group’s cash generation has been weaker, as reflected by its negative net operating cash flow of RM53.6 million in the period, while cash and cash equivalents stood lower at RM114.8 million (FY2008: RM267.8 million) against short-term borrowings of RM1.3 billion (inclusive of the RM891.8 million loan facility that is expected to be refinanced). MARC notes that at the holding company level, Mulpha’s cash and cash equivalents stood at RM19.1 million, of which only RM4.0 million remains unencumbered. Mulpha’s designated accounts are adequately funded at RM21.4 million in relation to next scheduled reduction of its RM20.0 million BG MUNIF in March 2010. With this principal repayment, the total amount outstanding on the BG MUNIF would be reduced to RM25 million while the outstanding for CP/MTN facilities would remain at RM25.0 million.

Mulpha has announced an equity fund raising exercise that should facilitate improvement to its financial flexibility. Its proposed rights issue is expected to raise RM471.2 million, of which RM123.0 million is expected to be used to reduce borrowings while the balance will be utilised as working capital, primarily for its domestic residential property projects in Bangsar and Bukit Tunku as well as the construction of a 29-storey Grade A office tower in Jalan Sultan Ismail in Kuala Lumpur. Mulpha has also proposed to issue of up to US$200.0 million multi-currency medium term notes via its wholly-owned Labuan-based Mulpha SPV Limited. On full drawdown of this facility, its pro-forma DE ratio would rise to 0.97 times.

MARC expects Mulpha to remain acquisitive on an opportunistic basis and remains concerned as to the impact of such acquisition(s) on Mulpha’s current capital structure and liquidity position. To maintain the standalone ratings at current levels, MARC expects Mulpha to complete its refinancing of its maturing debt and corporate fund raising exercises. The stable outlook also anticipates better business conditions in 2010 which should support a gradual trend of improvement to Mulpha’s earnings and cash flow generation in the next 18 months.

Contacts:
Rajan Paramesran, 03-2090 2233/ rajan@marc.com.my;
Elea Nor Zainal, 03-2090 2263/ elea@marc.com.my