MARC AFFIRMS ITS MARC-1IS(fg)/AAAIS(fg) RATINGS ON LBS BINA GROUP BERHAD’S ISLAMIC DEBT PROGRAMME

Apr 29, 2013 -

MARC has affirmed its ratings on LBS Bina Group Bhd’s (LBS Bina) RM135 million Islamic Commercial Papers/Islamic Medium Term Notes (ICP/IMTN) Programme at MARC-1IS(fg)/AAAIS(fg) with a stable outlook. The affirmed ratings and outlook are underpinned by an irrevocable and unconditional Kafalah Guarantee provided by financial guarantee institution Danajamin Nasional Berhad (Danajamin) in relation to the ICP/IMTN Programme. MARC currently rates Danajamin’s financial strength rating at AAA/stable based on Danajamin’s economic role as Malaysia’s sole financial guarantee insurer, a perceived high degree of support from the government in line with Danajamin’s public policy objective, its adequate capital structure and liquidity profile.

LBS Bina is a mid-sized property developer with activities currently focused on its flagship township development, Bandar Saujana Putra (BSP) in Kuala Langat, Selangor and, to a lesser extent, Puchong, Selangor, and Cameron Highlands, Pahang. Although an established player in the medium-cost segment, the group has expanded its scope to include the high-end market segment since 2011. MARC notes LBS Bina’s project launches in BSP comprising 744 units in 2012 have achieved a moderate take-up rate of 74%, although about 50% of the units were launched in the 4Q2012. Given that landed residential development has reached matured stage in BSP, LBS Bina launched BSP Skypark, a high-rise mixed-commercial development of 32 shop lots and 411 service apartments under phase 1 in January 2013. The project has a gross development value (GDV) of RM203.3 million and is expected to cater to demand for residential units in the township. MARC believes that the shift from landed properties to high-rise would allow LBS Bina to further maximise its land bank, however, the recent implementation of tighter lending guidelines by banks could weigh on demand for the developer’s newer launches.   

LBS Bina’s recent involvement in the high-end property segment through its 192-acre D’Island Residences project in Puchong has witnessed a slower take-up rate in 2012. Also, while the smaller and lower priced residential units achieved 100% sales, MARC observes that the sales of the larger semi-detached and super-link residences have been somewhat slower, reflecting the challenging conditions for the high-end segment in the Klang Valley. LBS Bina’s current development in Cameron Highland which has a GDV of RM262.6 million has achieved moderate response, with stronger sales of residential units as compared to commercial ones.  As at end-January 2013, the group has a GDV of RM1.87 billion for ongoing projects and unbilled sales of RM724.5 million which would provide near-term earnings visibility. 

MARC also notes that LBS Bina’s recent decision to divest its equity interest in its China assets to Zhuhai Holdings Investment Group Ltd (Zhuhai Holdings) would enable the group to monetise its China assets. LBS Bina, through its subsidiaries, holds a 60% stake in a golf club in Zhuhai, China and its surrounding development land totalling 197 acres. The cash and equity consideration of the divestment amounting to HKD1.35 billion (RM538.1 million) and 16.78% equity stake in Zhuhai Holdings, valued at HKD300.0 million (RM119.6 million) would provide LBS Bina additional liquidity to reduce its upcoming debt obligations while retaining the group’s exposure to future development projects in Zhuhai, China.

For the financial year ended December 31, 2012 (FY2012), the group’s revenue improved to RM509.6 million (2011: RM425.3 million) on the back of higher sales, arising mainly from projects in BSP. However, its operating profit margins declined to 18.4% (2011: 20.0%) due to weaker sales of its high-end properties, while pre-tax profit improved marginally to RM75.0 million (2011: RM67.7 million). Nevertheless, the group recorded higher cash flow from operations (CFO) of RM124.4 million (2011: negative RM8.8 million), although this was achieved through an increase in construction-related payables. The higher CFO allowed LBS Bina to early redeem RM60 million of its outstanding notes under the ICP/IMTN Programme in 2012, bringing its total borrowings and debt-to-equity ratio to RM429.3 million and 0.81 times respectively (2011: RM479.6 million; 0.95 times). An additional RM15 million of its outstanding debt under the ICP/IMTN Programme was redeemed on February 26, 2013, resulting in its proforma debt-to-equity ratio declining further to 0.78 times. MARC also notes that should the group utilise the proceeds from the disposal of its China assets to reduce its borrowings, its proforma debt-to-equity ratio is expected to improve to 0.55 times. LBS Bina’s remaining outstanding notes under the ICP/IMTN Programme of RM60.0 million will mature in 2015 (RM40 million) and 2016 (RM20 million). 

As the ratings and outlook hinge on the guarantee provided by Danajamin, any changes to LBS Bina’s rating would be largely driven by changes in Danajamin’s credit strength.

Contacts:

Jasmine Kua, +603-2082 2280/ jasmine@marc.com.my;

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