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

Dec 2, 2013 -

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 affirmed rating and outlook are premised on the unconditional and irrevocable financial guarantee provided by Danajamin Nasional Berhad (Danajamin) for the CP/MTN Programme. MARC has a current rating of AAA/stable on Danajamin 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.

Wholly-owned by Asian Pac Holdings Berhad (Asian Pac), Kapasi is currently developing the second phase of Kota Kinabalu Times Square (KKTS phase 2) which consists of a four-storey shopping mall, 36 exterior shops and five blocks of 9- and 10-storey serviced apartments. As of September 30, 2013, the construction of the KKTS phase 2 project is 122 days behind schedule due to labour shortage. As a result, the completion of the project, which has a gross development value (GDV) of RM1.43 billion, will be delayed to 1Q2014 from 4Q2013. MARC views any further construction delay would have an impact on project cash flows, and consequently Kapasi’s ability to meet financial obligations on a timely basis.   

MARC notes that Kapasi has recorded an average take-up rate of 80.7% for its 631 serviced apartments under the project’s residential component as at October 31, 2013. Notwithstanding this, the response for its last launch of 110 units in November 2012 has been slow due mainly to weakening property market sentiments as well the higher average selling price of RM982 psf. On the whole, however, MARC observes the average selling price of Kapasi’s serviced apartments of RM770 psf remains competitive compared to similar developments in Kota Kinabalu. For the retail mall component, which has a net lettable area of 705,400 sq ft, MARC understands that Kapasi has secured tenancy of 61.3% as at end-October 2013, with about 24.4% in the negotiation stage. With an average rental of RM6.10 psf, the company is expected to generate recurrent rental income that would be complemented by parking fees from 2,100 parking bays in the mall as well as 1,323 parking bays from its earlier development projects, KKTS phase 1 and Karamunsing Capital. As of end-September 2013, Kapasi has unbilled sales of RM220 million that provide near-term earnings visibility.

For the financial year ended March 31, 2013 (FY2013), Kapasi’s revenue rose sharply to RM103.9 million (FY2012: RM36.0 million) on the back of higher take-up rates for its earlier launches as well as sale of its exterior retail shop lot units to a related company. Cash flow from operations (CFO) of RM39.2 million in FY2013 (FY2012: RM45.9 million) was mainly due to an increase in trade payables by RM43.6 million. Following the redemption of RM50 million in June 2013, the cash balance and debt-to-equity ratio as of July 31, 2013 stood at RM24.5 million and 0.83 times (FY2013: RM62.6 million; 1.12 times). Given that the company’s remaining outstanding notes under the CP/MTN Programme of RM150 million will mature in June 2014 (RM70 million) and June 2015 (RM80 million), there is a likelihood that Kapasi may need to rely on external funding and/or intercompany loans to address its financial obligations. Alternatively, Kapasi can seek to roll over the RM70 million MTN under the programme provided it meets certain conditions as stipulated by Danajamin. 

Nonetheless, noteholders under the CP/MTN programme are insulated from any downside risks in relation to Kapasi’s credit profile based on the guarantee provided by Danajamin. Any changes in Kapasi’s rating will 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