MARC AFFIRMS ITS AAA(bg) AND MARC-1(bg) RATINGS OF MEGA PALM SDN BHD'S RM150 MILLION BANK GUARANTEED MTN AND CP

Oct 5, 2011 -
MARC has affirmed its AAA(bg) and MARC-1(bg) ratings on Mega Palm Sdn Bhd’s (Mega Palm) Bank Guaranteed Medium Term Notes (BG MTN) of up to RM70.0 million and Bank Guaranteed Commercial Papers (BG CP) of up to RM80.0 million respectively. The outlook for the ratings is stable. The rating action affects outstanding BG MTN of RM10.0 million and BG CP of RM46.8 million. The affirmed ratings and stable outlook reflect MARC’s ratings of AAA/MARC-1 on Malayan Banking Berhad (Maybank), which has provided an unconditional and irrevocable guarantee on the MTN and CP. Maybank’s ratings reflect the bank’s entrenched market position as the largest commercial bank in Malaysia, its established franchise, its sound asset quality and its favourable financial profile.

Mega Palm is the developer of a Country Heights Damansara (CHD), a 196-acre high-end residential project located along SPRINT highway in Kuala Lumpur. Operating trends were somewhat more positive in 2010 with sales of bungalow lots faring better. The number of bungalow lots sold increased to 19 from 10 in the previous year due to more competitive pricing. New homes sales, however, remained sluggish; since the project’s launch in 2001, only six units of bungalows have been sold to date. MARC notes that Mega Palm has revised its development plan for CHD to provide for the sale of a 13.4-acre land parcel that was previously held for cluster bungalow development. With the change in development plans, the project has 19.8 acres of remaining land to develop with an estimated gross development value of RM230.0 million. MARC believes that revenue from land sales will continue to be the primary contributor to Mega Palm’s earnings and cash flow for the foreseeable future.

The company’s revenues almost doubled to RM63.1 million for the 12 months ended December 31, 2010 (FY2010) (FY2009: RM32.7 million) while its pre-tax profit rose to RM19.0 million in FY2010 (FY2009: RM6.3 million). Mega Palm’s debt-to-equity ratio declined to 0.83 times (FY2009: 1.01 times) on the back of a repayment of RM5.0 million BG CP during the year. With its redemption of BG MTN amounting to RM30.0 million on May 25, 2011, Mega Palm’s DE would improve to 0.54 times on a pro-forma basis. Mega Palm’s financial flexibility remains modest as implied by its internal liquidity position; only RM14.5 million of its total cash position of RM44.3 million is unencumbered.

BG MTN and BG CP noteholders are insulated from downside risks in relation to Mega Palm’s credit profile by virtue of the guarantees provided by Maybank. Any changes in the supported ratings or ratings outlook will be primarily driven by changes in Maybank’s credit strength.

Contacts:
Darrell Lim, +603-2082 2261/ darrell@marc.com.my;
Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my.