Published on 18 Sep 2018.
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 by RAM), which enhances the credit standing of the IMTN beyond Puncak Wangi's stand-alone 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.
To date, Puncak Wangi has yet to deliver the Office Tower, given that the revised timeline for the completion of Interior Design (ID) works on September 2018, due to re-appointment of a new ID contractor by Celcom. The overall base building had been fully completed in January 2018 while the progress of ID works was at 50% as at end-June 2018 – on track based on the revised timeline. With minimal residual construction risk, we do not expect the completion of ID works to deviate much from the targeted September 2018, as 95% of the ID has been finalised with Celcom. Currently, the Company is negotiating a supplemental Agreement to Build and Lease (ATBL) with Celcom, which is anticipated to be signed by the end of the year.
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 RM328.63 million as at end-December 2017 and is expected to peak at RM420 million as the Company fully draws down its debt facilities to fund remaining construction costs as well as the repayment of its debt obligations.
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. In view of 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. In this regard, we highlight that any delay in the disposal will result in the IMTN maturing in November 2019 to be rolled over.
In the meantime, the Company's stand-alone profile is supported by stable rental income from Celcom for a period of 15 years subsequent to the Project's completion, with the option to extend the lease for two three-year terms. In the event that Celcom terminates the lease agreement before 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. 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.
Karin Koh, CFA
(603) 7628 1174
(603) 7628 1162