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 outlook on the MUNIF ratings has been revised to positive to reflect the revised rating outlook of the lower of the financial institution ratings of AmInvestment Bank Berhad and CIMB Bank Berhad, the guarantors for Mulpha’s obligations under the MUNIF.

Concurrently, MARC has affirmed its standalone ratings of MARC-1ID/AID on Mulpha’s RM25 million Murabahah Commercial Paper/Medium Term Notes (CP/MTN) facility with a stable outlook. The affirmed standalone ratings incorporate the weaker operating performance of Mulpha’s core property development and leisure-related operations due to subdued demand in its primary market in Australia. The ratings also reflect an easing of liquidity pressure on the non-operating holding company and improved debt maturity profile after completing a refinancing programme to extend its debt maturities, and deleveraging via raising new equity capital. There are presently no notes outstanding under the MUNIF and CP/MTN facilities expiring in March 2011 and 2012 respectively, with a reduced capped drawdown limit of RM50 million on a combined basis. 

MARC notes that Mulpha’s property division has had fewer project launches in fiscal 2010, both domestically as well as in Australia. Future estimated billings from contracted sales (unbilled) of domestic projects which stood at only RM42.7 million as of July 31, 2010 and AUD47.7 million as of June 30, 2010 for its Australian projects provides limited visibility of near-term earnings. Since MARC’s last rating action in February 2010, Mulpha had successfully completed a 1-for-1 rights issue which had raised approximately RM471 million, of which about RM305 million was utilised to pare borrowings to RM1,205.6 million as at September 30, 2010 from RM1,482.4 million as of December 31, 2009 (FY2009). Additionally, Mulpha had refinanced a significant portion of its short-term borrowings to extend its debt maturities, considerably alleviating MARC’s earlier concerns as to the potential for short-term liquidity pressures. From 89% of total borrowings as at end-FY2009, short-term debt has been lowered to a more manageable 14.8% as at September 30, 2010. Mulpha’s recently established US$200.0 million multi-currency medium-term notes programme should provide additional flexibility.

As in recent years, MARC expects Mulpha’s financial performance to continue to be supported by non-operational items through gains realized from dilution of interests and disposals. For the nine months ended September 30, 2010 results (9MFY2010), Mulpha registered a revenue of RM519.4 million (9MFY2009: RM436 million) and a consolidated profit before tax of RM37.7 million (9MFY2009: -RM105.8 million) on the back of share of results from associates and jointly-controlled entities of RM61.1 million (9MFY2009: -RM64.0 million) and RM18.7 million (9MFY2009: RM9.1 million) respectively. However, at the operating income level, Mulpha would register an operating loss of RM4.0 million (9MFY2009: -RM46,000) excluding gains from dilution of shares in an associate amounting to RM29.8 million. The weak operating performance at the operating level is attributable to higher expenses incurred related mainly to its Australian property projects in particular to infrastructure development at its Sanctuary Cove and Hayman Island projects. 

Although the group’s debt leverage as measured by its consolidated debt-to-equity (DE) ratio declined to 0.42 times (FY2009: 0.66 times) as at September 30, 2010 in line with lower borrowings, MARC notes that the group continues to be burdened by sizeable financing costs which averaged RM76.6 million per annum over the last five-year period.  The borrowings have been largely incurred by Mulpha’s wholly-owned Australian subsidiary, Mulpha Australia Ltd (MAL) which continues to be the major revenue contributor (67% in FY2009). Besides its signature project, the Gold Coast-based Sanctuary Cove development, an integrated tourist-residential resort with a high-end residential component, MAL owns and operates four five-star hotels in major Australian cities and has equal joint interest with FKP in Mulpha FKP Pty Ltd, the developer of the 377-ha Norwest Business Park in Sydney. MARC notes the Sanctuary Cove development registered a 37.6% decline in revenue to AUD46.7 million in FY2009 (FY2008: AUD74.8 million) due to continued weak sales performance for its water-front land parcels while MAL’s hotel operations were affected by lower occupancy levels of 63% (FY2008: 66.6%).  MARC also notes the relatively few launches lined-up for its domestic property development operations including its flagship Leisure Farm Resort despite its considerable land bank in relatively prime locations in Kuala Lumpur and Johor Bahru. As a result, MARC expects earnings from its domestic property development operations to remain subdued in the near term.

As a holding company, Mulpha’s primary sources of cash inflows are dividend income, proceeds generated by disposals of investments and repayment of advances from its subsidiaries. The company’s liquidity has been bolstered by its April 2010 rights issue which also helped Mulpha reduce holding company level debt to RM0.2 million. Its cash and cash equivalents rose to RM87.0 million as of September 30, 2010. The group’s efforts to reduce debt and strengthen liquidity have been important in alleviating the pressure on its debt service coverage caused by continued operating cash flow deficits.

The stable outlook on the CP/MTN ratings reflect MARC’s expectations that Mulpha will continue to maintain a good financial flexibility, supported by its investment holdings and manageable debt maturity profile for the remaining tenure of the rated facilities. Furthermore, MARC expects meaningful acquisitions to be financed in a manner that limits the erosion of credit metrics.

Contacts:
Benjamin Yab, +603-2082 2270/ benjaminyab@marc.com.my;
Darrell Lim, +603-2082 2261/ darrell@marc.com.my;
Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my.