RAM Ratings reaffirms ratings of Bandar Raya’s debt facilities, revises outlook from stable to negative

Published on 15 June 2011

RAM Ratings has reaffirmed the respective long- and short-term ratings of Bandar Raya Developments Berhad’s (BRDB or the Group) RM200 million Nominal Value Commercial Papers/Medium-Term Notes Programme (2007/2014), at A1 and P1. At the same time, the A1 rating of BRDB’s RM100 million Bonds with warrants (2007/2012) has also been reaffirmed. The outlook on both long-term ratings has been revised from stable to negative.

The revised outlook is premised on BRDB’s weaker financial profile as a result of slower-than-expected property sales and delays in new launches, which had steadily reduced its unbilled sales from RM879 million as at end-December 2008 to RM225 million as at end-March 2011. This had in turn affected its debt coverage, which came in below our expectations. Year-on-year in FY Dec 2010, BRDB’s operating profit before depreciation, interest and tax debt coverage ratio shrank from 0.27 times to 0.12 times while its funds from operations debt coverage ratio descended from 0.23 times to 0.12 times.

Going forward, the Group may face more challenges as most of its future projects are within the keenly competitive medium-to-high-end condominium market. BRDB’s ratings will face downward pressure if its unbilled sales keep getting depleted and/or its debt coverage deteriorates further. On the other hand, the negative outlook could be reverted to stable if BRDB is able to replenish its unbilled sales and demonstrate sustainable improvement in its financial profile.

The reaffirmation of the ratings, meanwhile, is premised on BRDB’s established reputation and strong branding in high-end developments, including The Troika in KLCC and One Menerung in Bangsar. Its recently launched 6 CapSquare in Kuala Lumpur achieved a take-up rate of more than 50% in less than 6 months. The management has planned about RM4 billion of new projects in various parts of the Klang Valley and Johor over the next 2 years. The Group recently replenished its land bank through the formation of various joint ventures - marking a shift in focus from BRDB’s traditional strongholds to new areas in Selangor (Seri Kembangan, Rawang and Gombak), Penang and Johor (Nusajaya); these are expected to provide development opportunities over the longer term. BRDB also derives some revenue stability from its pool of investment properties, with Bangsar Shopping Centre as its chief contributor.

Elsewhere, BRDB’s 57%-owned chipboard-manufacturing arm, Mieco Chipboard Berhad (Mieco), managed to turn around with a pre-tax profit of RM2 million in FY Dec 2010. Although demand for chipboard seems to have recovered somewhat, it remains to be seen if Mieco can sustain its improved performance, especially with additional capacity from the recent recommencement of operations at its largest plant, which had been closed since November 2008. The still-competitive operating environment, coupled with rising raw-material prices, may add pressure on its margins.

As at end-March 2011, BRDB’s unencumbered cash and bank balances amounted to only RM113 million against RM318 million of short-term debts. Nonetheless, this is mitigated by a recently secured term-loan facility of up to RM450 million.

Media contact
Anne Yap
(603) 7628 1038
anne@ram.com.my