MARC has affirmed its debt ratings on Putrajaya Holdings Sdn Bhd’s (PJH) outstanding issuances as follows:

• RM370.0 million Sukuk Musharakah Programme (due 2030) at AAA_IS / stable;
• RM3.0 billion Sukuk Musharakah Programme (due 2032) at AAA_IS / stable;
• RM1.5 billion Sukuk Musharakah Medium-Term Notes (MTN) Programme (due 2033) at AAA_IS / stable; and
• RM2.2 billion Murabahah Medium-Term Notes (MMTN) Programme (due 2021) at AAA_ID / stable.

The ratings affirmation incorporates the stable and sizeable rental income that PJH receives from the Malaysian government for subleasing government buildings in Putrajaya under long-term lease-and-sublease agreements. The ratings are also supported by PJH’s long-term track record as the master developer of Putrajaya and the strength of its major shareholders, namely KLCC Holdings Sdn Bhd and Khazanah Nasional Berhad.

PJH’s most recent projects were the Ministry of Transport and Road Transport Department building, and the Election Commission of Malaysia building in 2014. Similar to other completed government buildings, PJH will sublease the two buildings to the government for 25 years under lease-and-sublease agreements with the Federal Land Commissioner. MARC notes that the recently completed government buildings will contribute to PJH’s RM1.3 billion current annual sublease rental income. As of date, PJH has delivered 35 government buildings with a total gross built-up area of 37.4 million sq ft.

MARC deems PJH’s annual sublease rental income as more than sufficient to meet principal repayments of between RM300.0 million and RM740.0 million per year over the next five years. Aside from the MMTN programme, sublease rentals have not been specifically assigned to the other rated programmes. MARC notes that PJH commenced the RM1.6 billion development of nine government buildings in Putrajaya which are expected to be completed by end-2018, while the construction of the Malaysian Anti-Corruption Commission building is ongoing. The construction of the Ministry of Trade and Industry building was completed with the Certificate of Acceptance issued on October 13, 2015.

MARC observes that PJH recently reduced its residential and commercial property development launches: four residential developments with an estimated total gross development value (GDV) of about RM431.0 million were launched in 2014, compared with six launches with a total GDV of RM594.7 million in 2013. In 2015, only three residential developments and a commercial development with a total GDV of about RM472.0 million were launched. While PJH acquired a combined 9.19 acres of land along Jalan Ampang for RM968.3 million, it has indicated no immediate plans to develop it. This notwithstanding, private property development projects would expose the group to market risk.

For the six-month financial period ended June 30, 2015 (1H2015), the group generated lower cash flow from operations (CFO) of about RM478.3 million (1H2014: RM642.7 million). Its cash and cash equivalents, however, stood higher at about RM811.8 million (1H2014: RM804.1 million) due primarily to lower debt repayment compared to the previous corresponding period. The group’s total borrowings stood at RM4.6 billion as at end-June 2015, with a debt-to-equity (DE) ratio of 0.68x. While the group’s borrowings have been reduced from a recent high of RM5.6 billion with a DE ratio of 1.2x in 2011, this could increase to fund new developments. MARC opines that PJH has considerable financial flexibility with unutilised credit lines of about RM2.9 billion to meet its obligations. Nonetheless, as PJH has been paying out sizeable dividends over the past two financial years amounting to a total of RM517 million, any sharp increase in dividend payouts could weigh on its liquidity.

The stable ratings outlook reflects MARC’s expectations that PJH’s credit metrics, in particular its cash flow and financial flexibility, would remain commensurate with the current ratings over the near term.

Contacts:
Cheah Wan Kin, +603-2082 2232/ wankin@marc.com.my;
Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my.