MARC has affirmed its ratings on Berjaya Land Berhad’s (BLand) outstanding RM500.0 million Medium-Term Notes (MTN) Programme guaranteed by Danajamin Nasional Berhad (Danajamin) at AAA_(fg) and RM150.0 million MTN Programme guaranteed by OCBC Bank (Malaysia) Berhad (OCBC Malaysia) at AAA_(bg). The outlook for the ratings is stable. The affirmed ratings reflect the unconditional and irrevocable guarantees provided by Danajamin and OCBC Malaysia respectively. Danajamin carries a financial insurer rating and counterparty rating of AAA/Stable while OCBC Malaysia has a public information rating of AAA/Stable from MARC.

BLand’s standalone credit profile remains weighed down by the challenging prospects for the domestic property industry, its sizeable debt obligations and modest earnings from non-gaming subsidiaries. The group has continued to rely on refinancing and proceeds from asset disposals to meet its principal financial obligations. Over the near term, its property projects remain limited to ongoing developments in Bukit Jalil and Puchong in the Klang Valley as well as Georgetown in Pulau Pinang. These projects have a modest combined contracted sales value of RM395.5 million and are expected to be completed by 2019.

BLand continues to face challenges in some of its foreign property developments. Following the suspension of its RM1.0 billion residential development joint venture in Jeju, South Korea, the company has partially recovered RM374.5 million with the remainder sum to be recovered through court proceedings. Meanwhile, the group has sizable property development projects in Vietnam comprising a financial centre and a university town with an estimated combined GDV of RM38 billion. These projects remain in the planning stage. MARC also notes that with the recent change in BLand’s key management team, the group is expected to refocus its property development activities.

BLand’s hotels and resorts operations have generally improved on the back of higher average room rates. Its hotels continue to benefit from the group’s long track record in domestic hotel operations and partnerships with large hotel chains on the international front. The group’s investments in hotel properties have also been a source of liquidity in the past. BLand is currently disposing of its stake in Long Beach Phu Quoc Resort in Vietnam for RM65 million.

BLand’s consolidated financial profile remains dominated by subsidiary Berjaya Toto Berhad (BToto), which accounted for about 84.5% of operating profit for the financial year ended April 30, 2017 (FY2017). BToto’s key subsidiary, Sports Toto Malaysia Sdn Bhd (Sports Toto) is a leading operator of number forecast operations from which it generates strong operating cash flows, averaging around RM350 million per annum over the last five years. MARC maintains a AA-/Stable rating on Sports Toto’s RM800 million MTN programme.

At the holding company level, BLand’s revenue, which largely comprised dividend income, declined to RM70.4 million in FY2017 from RM140.8 million a year earlier. This was due to lower dividend income from its property development, and hotels and resorts business. The holding company registered pre-tax loss of RM46.4 million compared to pre-tax profit of RM196.1 million in FY2016 which was supported by write-backs of related party receivables amounting to RM276.6 million. The rated RM650 million MTN programme is fully drawn down, with the first repayment of RM175.0 million scheduled in December 2018, which could be rolled over under the programme structure.

Notwithstanding BLand’s standalone risk factors, noteholders are insulated from downside risks related to the credit profile of BLand by the guarantees provided by Danajamin and OCBC Malaysia. Any change in the supported ratings or rating outlook would be primarily driven by changes in the credit strength of the guarantors.

Contacts:
Saifuruddin Othman, +603-2717 2945/ saifuruddin@marc.com.my;
Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my.