MARC AFFIRMS ITS RATINGS OF MARC-1(fg)/AAA(fg) ON SYARIKAT KAPASI SDN BHD’S CP/MTN PROGRAMME

Dec 3, 2012 -

MARC has affirmed the ratings of MARC-1(fg)/AAA(fg) on Syarikat Kapasi Sdn Bhd’s (Kapasi) RM200 million Commercial Papers/Medium Term Notes (CP/MTN) Programme with a stable outlook. The rating action is premised on the financial guarantee insurance policy provided by Danajamin Nasional Berhad (Danajamin) for the CP/MTN Programme. MARC has a current rating of AAA/stable on Danajamin, which is based on its important role as Malaysia’s sole financial guarantee insurer, its status as a government-sponsored entity, its solid capital base and ample liquidity.

The proceeds from the fully drawn down CP/MTN programme are being utilised to partly fund the second phase of construction of Kapasi’s signature project, Kota Kinabalu Times Square (KKTS). The second phase of the KKTS project, which consists of a retail mall with nett lettable area of 695,938 sq ft, five serviced apartment blocks and exterior shops with car park lots, has a gross development value (GDV) of RM1.43 billion. MARC notes that the GDV has been revised upwards from an initial projection of RM1.24 billion in July 2010 as a result of changes in the design layout of the serviced apartments to increase floor space as well as selling price. MARC acknowledges that Kapasi’s strategy, has optimised its sellable area from the project, but the design changes and the subsequent approval process had led to a moderate delay in sales launches. The rescheduling of launches, in MARC’s view, may have affected the project’s take-up rates for its serviced apartments in view of the moderating outlook for the property sector as the central bank’s steadily tightening policy on mortgage financing takes hold.

MARC notes that the second phase of KKTS, which is slated for completion by end-2013, is on schedule with 26% completed as at June 30, 2012. As of to date, five service apartment blocks have been launched, with a markedly lower take-up rate for units launched on later dates. Should the sales target fall short of projections, the company’s cash flow would be strained to meet its financial commitments. 

For financial year ended March 31, 2012 (FY2012), Kapasi’s revenue and pre-tax profit rose to a modest RM36.0 million (FY2011: RM1.7 million) and RM7.0 million (FY2011: -RM2.6 million) on the back of launches of three serviced apartment blocks in 2011. Of the total revenue, 94% was from property sales, while the remaining was derived from car park operations (6%) and rental income (0.09%) from its earlier projects. Cash flow from operations increased to RM45.9 million due largely to an increase in trade payables amounting to RM24.6 million (FY2010: -RM3.6 million) and changes in related companies balances of RM19.5 million (FY2010: RM49.7 million).

Following the full drawdown of RM200 million under the CP/MTN program, Kapasi’s debt-to-equity ratio increased significantly to 1.16 times in FY2012 (FY2011: 0.18 times), while its cash and cash equivalents stood at RM164.6 million as end-FY2012. The first scheduled repayment of the CP/MTN facility is on June 30, 2013 amounting to RM50 million.

Noteholders under the CP/MTN programme are, however, insulated from any downside risks in relation to Kapasi’s credit profile by the financial insurer guarantee provided by Danajamin. Any changes in the supported ratings or rating outlook will be primarily driven by changes in Danajamin’s credit strength.

Contacts:

Nisha Fernandez, +603-2082 2269/ nisha@marc.com.my;

Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my.