RAM Ratings reaffirms AAA(fg)/AAA(bg) ratings of Silver Sparrow’s guaranteed debt facility

Published on 24 January 2014

RAM Ratings has reaffirmed the AAA(fg)/AAA(bg) ratings of Silver Sparrow Berhad’s (SSB or the Company) Guaranteed MTN Programme of up to RM515 million (2011/2021) (the MTNs or the Programme). The ratings carry a stable outlook.

The credit profile of the MTNs is enhanced beyond SSB’s inherent or stand-alone credit strength by unconditional and irrevocable guarantees extended by Danajamin Nasional Berhad (rated AAA/Stable/P1 by RAM), Malayan Banking Berhad (AAA/Stable/P1) and OCBC Bank (Malaysia) Berhad (AAA/Stable/P1) on a proportionate basis.

Wholly-owned by Aseana Properties Limited (Aseana or the Group), SSB was incorporated as a funding vehicle to facilitate the issuance of the MTNs, the proceeds of which had been and will be on-lent to 2 of SSB’s sister companies to refinance existing borrowings and partly finance the development of Sandakan Harbour Square, an integrated complex comprising the Sandakan Harbour Mall and a 4-star hotel – Four Points by Sheraton Sandakan (Four Points Sandakan) – as well as to fund the acquisition of Aloft Kuala Lumpur Sentral (Aloft KL Sentral).

Aseana is a property developer, listed on the London Stock Exchange’s Main Market in April 2007. Via an unconditional and irrevocable corporate guarantee, Aseana undertakes to ensure that SSB meets its obligations under the financial/bank guarantee facilities. Given Aseana’s undertaking and the importance of the aforementioned properties to the Group, the corporate credit ratings of SSB essentially reflect the credit fundamentals of the Group.

Aseana’s stand-alone credit profile is moderated by the weak performance of key projects that are still within their gestation periods. Sandakan Harbour Mall and Four Points Sandakan continue to be loss-making as occupancy remains low. However, Aloft KL Sentral has performed reasonably well since its opening in March 2013 and is operationally profitable, supported by its position as the only 4-star hotel within the KL Sentral development. Elsewhere, Aseana maintains a cautious approach to its projects in Vietnam due to the challenging operating environment. As part of its de-risking strategy in the republic, the Group has already terminated 2 joint ventures and may sell a section of its landbank earmarked for remaining projects should the opportunity arise.

As at end-June 2013, the Group’s borrowings had jumped to USD247.82 million from USD154.17 million as at end-2012, resulting in its gearing ratio doubling to 1.35 times (end-2012: 0.78 times). Its operating cashflow debt cover remained negative due to the loss-making Sandakan Harbour Square and working capital requirements. Unless Aseana is able to sell its assets to pare down its debts, the Group’s balance sheet and debt coverage are expected to remain weak. In addition, Aseana would likely need to refinance the significant USD82.26 million of MTNs maturing in FY Dec 2015 and another USD80.37 million in FY Dec 2016.

On balance, Aseana benefits from the experience of its exclusive development manager, Ireka Development Management Sdn Bhd, a wholly-owned subsidiary of Bursa Malaysia-listed Ireka Corporation Berhad (Ireka Corp). Ireka Corp has more than 4 decades of experience in construction, property development and hospitality. In addition, Aseana has demonstrated the ability to form strategic partnerships with reputable firms in developing property projects in Malaysia and Vietnam, primarily tapping the more visible branding, local market knowledge and extensive market network of its partners.

Media contact

Thong Mun Wai

(603) 7628 1022

munwai@ram.com.my