MARC has affirmed its ratings on Putrajaya Holdings Sdn Bhd’s (PJH) issuances under the following programmes:

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

The ratings are mainly premised on PJH’s stable and sizeable rental income from the Malaysian government as the principal lessee of government buildings in Putrajaya under various long-term lease-and-sublease agreements. The ratings also incorporate the credit strength of PJH’s government-linked major shareholders and its track record as the master developer of the federal administrative centre. The stable ratings outlook reflects MARC’s expectation that PJH’s credit profile would remain commensurate with the ratings and will receive continued support from its key shareholders.

As at end-June 2019, PJH had delivered 40 government building projects with a total gross built-up area of 37.5 million sq ft under lease-sublease arrangements with the government. PJH’s only outstanding government building project, the Parcel F project, which is being undertaken by its wholly-owned subsidiary Putrajaya Bina Sdn Bhd, has also been completed and is pending the commencement of occupation and lease payments by the government by end-2019. Including the lease rental income from the Parcel F project, PJH’s annual lease rental income would be about RM1.6 billion which is more than sufficient to meet principal repayments of between RM480.0 million and RM835.0 million per annum over the next five years.

PJH is currently undertaking the construction of three mixed development projects in Precinct 7 and Precinct 8, Putrajaya with an estimated gross development cost of RM864.8 million. The projects, which comprise a retail mall, a serviced apartment complex, an event hall, a hotel and a student accommodation block, are expected to be completed by end-2025. The rating agency notes with some concern the market risk associated with these projects which would be a significant departure from PJH’s previous undertaking of the construction of government buildings that subsequently provided assured rental payments from the government.

For PJH’s ongoing residential projects, the overall take-up rate remains modest at 42% as at end-June 2019, reflecting the subdued property market sentiment. PJH’s total property inventory stood at RM243.0 million at end-June 2019 (2018: RM212.3 million), of which 70% comprises PJH’s high-end residential units priced above RM1.0 million. PJH has scaled back on new property projects to focus on clearing its inventories.

For 2018, PJH’s revenue and operating profit increased by 5.2% and 7.6% y-o-y to RM2.9 billion and RM1.3 billion, supported by the construction revenue from Parcel F and lease rental income from the newly completed Malaysian Anti-Corruption Commission building. The strong profitability has helped the group achieve a better debt-to-equity ratio of 0.72x. Cash flow from operations declined to RM886.5 million on higher working capital, incurred mainly for residential property development operations.

PJH has been paying cash dividends amounting to about 30% of its annual net profit; any significant increase in dividend payouts from current levels would weigh on its liquidity position. The company has significant financial flexibility with unutilised credit lines of around RM632.2 million, excluding the amounts available under the rated facilities.

Contacts:
Raj Shankar, +603-2717 2956/ rajshankar@marc.com.my;
Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my