Published on 10 Aug 2017.
RAM Ratings has reaffirmed the AAA(fg)/stable rating of Puncak Wangi Sdn Bhd’s (the Company) Guaranteed IMTN Programme of up to RM200 million (2014/2022). The enhanced rating reflects an irrevocable and unconditional guarantee extended by Danajamin Nasional Berhad (rated AAA/stable/P1), which enhances the credit standing of the IMTN beyond Puncak Wangi’s credit strength. Puncak Wangi, a property investment company wholly owned by Malaysian Resources Corporation Berhad (MRCB or the Group), has signed a contract with Celcom Axiata Berhad (Celcom) to build and lease to Celcom an office tower (Office Tower or the Project) as its principal office.
There remains some uncertainty over when the 32-storey building will be delivered to Celcom. While residual construction risks have been minimised as the office tower being built by Puncak Wangi was around 93% complete as at end-January 2017, completion has been hampered by Celcom’s request to change the interior design contractor. The Company is now negotiating a supplemental Agreement to Build and Lease (ATBL) with Celcom, with changes mainly in the final construction timeline and potential new rental rates which take into account revised interior design works. The ATBL will be signed once Celcom has appointed a new interior design contractor, which is expected to be soon. Puncak Wangi expects the Office Tower to be completed in May 2018 , on the expectation that interior design works commence in August 2017. Any delay in the finalisation of the supplemental ATBL could further push back the commencement of rental income to Puncak Wangi.
As a project company, Puncak Wangi is highly leveraged, with the bulk of the Office Tower’s development cost being funded by the IMTN and bank loans. Puncak Wangi’s debt stood at RM269.78 million as at end-December 2016 and is expected to peak at RM470 million as the Company fully draws down its debt facilities to complete construction works.
Puncak Wangi is highly dependent on the disposal of the Office Tower or refinancing to meet bullet repayments on the principal of its IMTN and term loans. As the building will only be completed next year, the Company plans to roll over ITMNs maturing in November 2017. Given the long-term lease with Celcom upon the Project’s completion, and MRCB’s intention to inject its investment properties into the Group’s REIT, the likelihood of the Office Tower’s disposal to the REIT is deemed high.
On a more positive note, the Company’s stand-alone profile is supported by stable rental income from Celcom for a period of 15 years subsequent to project completion, with the option to extend the lease for two 3-year terms. In the event that Celcom terminates the lease agreement before its expiry, it would still have to settle all obligations for the remaining tenure of the lease.
The Office Tower is strategically located within the prime commercial hub of Petaling Jaya, and enjoys good visibility from Federal Highway Route II – the main thoroughfare of the Klang Valley. In addition, Puncak Wangi derives support from its parent, MRCB, in the form of irrevocable and unconditional guarantees to Danajamin to meet any cost overruns and working-capital needs in relation to the Project. Further, the Group is the main contractor for the Project and handles the day-to-day management of the Company.
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