MARC has affirmed the ratings of MARC-1_(fg)/AAA_(fg) on Riverson Corporation Sdn Bhd’s (Riverson) RM200.0 million CP/MTN facility with a stable outlook. The outstanding amount under the rated programme currently stands at RM100.0 million. The affirmed ratings and outlook are based on the unconditional and irrevocable financial guarantee provided by Danajamin Nasional Berhad (Danajamin) which carries MARC’s financial strength rating of AAA/stable.

MARC continues to regard Riverson’s standalone credit profile as weak in respect of its ability to generate sufficient income to meet its financial obligations. Kota Kinabalu-based Riverson’s performance has been affected by poor sales of retail units in its sole property project comprising a commercial block (139 SOHO units, 30 office suites and 248 retail lots) and a 200-bed hospital with 44 doctor suites and eight retail lots. For the commercial component, which has a gross development value (GDV) of RM447.8 million, Riverson registered overall sales of 56.5% of GDV in July 2015, a marginal improvement from the 54.5% recorded in August 2014. MARC views with concern that sales of the retail lots, which account for 65.6% of total GDV of the commercial block, have remained stagnant since our last review, although the office suites have been fully sold while the SOHO units achieved a 94.2% take-up.

The project construction is now substantially completed. Occupation Certificates (OC) for the retail and office units were obtained in October 2015 while the OC for the SOHO units is expected to be obtained by December 2015. The hospital component was completed in January 2015 and has been leased to Pantai Medical Centre Sdn Bhd, a subsidiary of one of the largest domestic private healthcare providers, Parkway Holdings Limited. Nonetheless, the expected lease rental income from the hospital is modest with a guaranteed total of RM30.0 million over ten years. However, Riverson is expected to receive some additional income from the rental of the doctor suites and retail lots at its hospital building.

For financial year ended June 30, 2015 (FY2015), unaudited consolidated revenue declined by 20.1% to RM129.8 million mainly due to lower progress billings as the project was at the tail-end of the construction stage. Nonetheless, unaudited consolidated pre-tax profit increased by 12.2% to RM50.3 million mainly due to other income in the form of a grant of RM21.0 million from the government’s Facilitation Fund (FY2014: RM7.4 million). The proceeds from the grant contributed to Riverson registering positive cash flow from operations (CFO) of RM21.2 million (FY2014: negative RM31.6 million).

MARC notes Riverson’s weak liquidity position, with unaudited cash balance of RM14.8 million against current obligations of RM147.0 million as at end-FY2015. The rating agency understands that an expected drawdown of RM85.0 million under a bank financing facility in mid-December 2015, coupled with cash balance, will be used for the repayment of the outstanding CP and MTN totalling RM100.0 million due on December 18, 2015. Alternatively, Riverson could roll over up to RM100.0 million of its CP and MTN on the redemption date in line with the programme’s reduction schedule. The programme will expire in December 2016.

Noteholders are insulated from any downside risks associated with the project and Riverson’s credit profile by the financial guarantee provided by Danajamin. Any changes in the programme’s ratings will be driven by changes in Danajamin’s credit strength.

Contacts:
Ngiam Tee Wei, +603-2082 2268/ teewei@marc.com.my;
Yap Lai Ken, +603-2082 2247/ laiken@marc.com.my.