RAM Ratings reaffirms ratings of Tropicana’s debt issue

Published on 28 January 2014

RAM Ratings has reaffirmed the following ratings of Tropicana Corporation Berhad’s (Tropicana or the Group) Bank-Guaranteed CP/MTN Programme of up to RM500.0 million (2012/2019)

Type	Long-Term	Short-Term	Outlook
The CP/MTN Programme comprising:
i)   Tranche 1 – Up to RM300.0 million to be  guaranteed by RHB Bank Berhad.	AA2(bg)	P1(bg)	Stable
ii)  Tranche 2 – Up to RM200.0 million to be  guaranteed by AmBank (M) Berhad.	AA2(bg)	P1(bg)	Stable

The enhanced ratings reflect the unconditional and irrevocable bank guarantees extended by RHB Bank Berhad and AmBank (M) Berhad, which enhance the credit risk profile of the debt issue beyond Tropicana’s stand-alone credit strength.

Tropicana is principally involved in property development and property investment. Reputed for its Tropicana brand of upscale properties, the Group’s key projects include Tropicana Golf and Country Resort, Tropicana Indah Resort Homes and Tropicana City – all located in Petaling Jaya, Selangor. Underpinned by its track record and healthy sales, Tropicana’s unbilled sales surged to RM2.2 billion as at end-September 2013 (end-September 2012: RM733 million) as it had rolled out considerably more projects in recent quarters. The Group had also substantially boosted its land bank to more than 2,000 acres in FY Dec 2012 from 913 acres previously. Its acquired land parcels, with an estimated total gross development value of RM79.5 billion, are located in growth areas in the Klang Valley, Johor and Penang, and are expected to sustain the Group’s property development activities over the medium term.
 
Nevertheless, the Group’s balance sheet is viewed as highly leveraged, following its aggressive rollout of projects and land acquisitions in recent years. Including the Redeemable Convertible Unsecured Loan Stocks (which were issued during the amalgamation exercise in 2012), Tropicana’s debt level shot up to RM2.3 billion as at end-September 2013 from RM1.04 billion as at end-June 2012, translating into a high gearing ratio of 1.07 times, from 0.86 times. The heavier debt load also weakened the Group’s funds from operations (FFO) debt coverage to 0.08 times from 0.1 times. Elsewhere, Tropicana faces a certain degree of execution risk in light of its ambitious rollout plans of launching more than RM2 billion worth of properties per annum. The high land-holding costs associated with its debt-funded acquisitions may limit its flexibility in deferring launches. Meanwhile, RAM is also cautious of the significant changes in Tropicana’s top and middle level management in the past one year. On a positive note, we are cognisant that the Group intends to embark on a de-gearing exercise via asset divestments, with the aim of bringing its net gearing down to 0.5 times over the next 2 years. That said, the success of this remains to be seen in light of the more challenging property market outlook in 2014.

Media contact
Jason Tan
(603) 7628 1031
Jasontan@ram.com.my