MARC DOWNGRADES RATING OF OLYMPIA INDUSTRIES BERHAD’S OUTSTANDING RM49,733,635 NOMINAL VALUE REDEEMABLE UNSECURED LOAN STOCKS TO B+ FROM BB-

Jan 27, 2012 -

MARC has downgraded the rating of Olympia Industries Berhad’s (Olympia) outstanding RM49,733,635 nominal value Redeemable Unsecured Loan Stocks (RULS) to B+ from BB- and concurrently revised the rating outlook to stable from negative. The rating action reflects Olympia’s continued weak financial performance, in particular its limited cash flow generation ability arising from its weak business profile and its dependence on asset disposals to meet its financial obligations. Olympia has a short-term debt of RM81.3 million including an upcoming redemption of RM10.7 million RULS in April 2012, while its liquidity position as reflected by its cash and cash equivalents stood at RM31.9 million as at September 30, 2011.

MARC notes that the slower-than-expected progress of the Kenny Heights Development (KHD) project on a 73-acre site in Kuala Lumpur has weighed on its financial performance. The KHD project, which consists of high-end residential projects and undertaken with a related company, DutaLand Berhad, was expected to provide a major boost to earnings. However, as of date, only one project, consisting of 49 units of four-storey villas with a gross development value of RM216.0 million, was completed and handed over in April 2011, while the first phase of its next project comprising two high-end condominium towers has been delayed from an initial launch date in 1Q2011. MARC notes that a soft launch of one tower of 168 units has only registered a 17% take-up rate, reflecting the weakening market sentiments for the high-end residential segment in the Klang Valley. MARC remains concerned on Olympia’s ability to fund the development given its weak liquidity position and limited financial flexibility.

Nonetheless, Olympia’s revenue continues to be supported by somewhat stable earnings from its gaming division and from rental proceeds from its Menara Olympia building. Gaming operations, which are carried out solely in Sabah, have come under increasing competitive pressures, registering a 4% decline in revenue to RM152.0 million for financial year ending June 30, 2011 (FY2011) (FY2010: RM158.2 million). However, operating profit was higher at RM6.2 million as compared to the RM0.2 million in FY2010 due mainly to a one-off restoration cost incurred in 2010. Olympia’s investment property, the 34-storey Menara Olympia with total lettable area of 457,521 sq ft, registered a lower occupancy rate of 74% in FY2011 (FY2010: 78%), and as a result, rental income declined to RM18.9 million (FY2010: RM19.4 million). MARC notes that the lower occupancy has somewhat been offset by an increase in average rental rates to RM4.80 psf from RM4.30 psf. The group’s other businesses, namely financial services and travel, managed to turnaround in FY2011, registering a modest operating profit of RM3.5 million (FY2010: -RM8.4 million) and RM0.6 million (FY2010: -RM0.1 million) respectively.

For FY2011, Olympia’s improved pre-tax profit of RM9.1 million (FY2010: -RM5.1 million) after two consecutive years of pre-tax losses was mainly due to lower fair value losses from disposal of marketable securities as compared to previous years. However, for the first quarter ended September 2011 (1QFY2012), MARC notes that the group suffered a sharp pre-tax loss of RM32.1 million (1QFY2011:-RM1.5 million) arising from fair value losses incurred on disposal of marketable securities.

MARC notes that Olympia’s liquidity position in FY2011 was largely supported by cash inflows generated from the disposal of marketable securities and land parcels which amounted to RM138.9 million to enable it to meet its financial obligations of RM85.1 million. Given the group’s limited cash flow generating ability, it would need to depend on asset sales to generate liquidity. Among its major assets is Menara Olympia which has a carrying amount of RM228.1 million as at September 5, 2011 and is secured against debts amounting to RM157.1 million, though MARC notes an earlier sale agreement for the building had fallen through.

The stable outlook incorporates MARC’s expectations that Olympia will manage timely disposal of assets to meet its future debt obligations.

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