KUALA LUMPUR: Malaysian Rating Corp Bhd (MARC) has affirmed its ratings on Berjaya Land Bhd’s (BLand) outstanding RM500 million Medium-Term Notes (MTN) Programme at AAA(fg) and its RM150.0 million MTN Programme at AAA(bg).
The outlook for the ratings is stable, MARC noted, affirming that the ratings reflect the unconditional and irrevocable guarantees provided by Danajamin Nasional Bhd (Danajamin) and OCBC Bank Malaysia Bhd (OCBC Malaysia)
The RM500 million MTN is guaranteed by Danajamin while the RM15 million MTN is guaranteed by OCBC Malaysia.
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.
MARC noted that 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," MARC noted.
The ratings agency said BLand continues to face challenges in some of its foreign property developments.
Following the suspension of its RM1 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, it noted.
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 noted 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 Bhd (BToto), which accounted for about 84.5 per cent of operating profit for the financial year ended April 30, 2017.
BToto’s key subsidiary, Sports Toto Malaysia Sdn Bhd 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 maintained 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 the financial year ended April 30, 2017 from RM140.8 million, previously.
This was due to lower dividend income from its property development, and hotels and resorts business.
The holding company registered RM46.4 million in pre-tax loss compared with RM196.1 million in pre-tax profit in the financial year ended April 30, 2016 which was supported by RM276.6 million in write-backs of related party receivables.
The rated RM650 million MTN programme is fully drawn down, with the first repayment of RM175 million scheduled in December 2018, which could be rolled over under the programme structure.
Noteholders are insulated from downside risks related to the credit profile of BLand by Danajamin and OCBC Malaysia’s guarantees.
Any change in the supported ratings or rating outlook would be primarily driven by changes in the credit strength of the guarantors, MARC said.