MARC has affirmed its ratings on property developer LBS Bina Group Berhad’s (LBS Bina) RM135 million Islamic Commercial Papers/Islamic Medium-Term Notes (ICP/IMTN) Programme at MARC-1IS(fg) /AAAIS(fg) with a stable outlook.

Apr 29, 2014 -
MARC has affirmed its ratings on property developer LBS Bina Group Berhad’s (LBS Bina) RM135 million Islamic Commercial Papers/Islamic Medium-Term Notes (ICP/IMTN) Programme at MARC-1IS(fg) /AAAIS(fg) with a stable outlook. The affirmed ratings and outlook are underpinned by an irrevocable and unconditional Kafalah Guarantee provided by financial guarantee insurer Danajamin Nasional Berhad (Danajamin) which carries MARC’s financial strength rating of AAA/stable.   
Bursa Malaysia-listed LBS Bina currently has developments in Kuala Langat and Puchong in Selangor, Cameron Highlands in Pahang and Batu Pahat in Johor. The group’s flagship development Bandar Saujana Putra (BSP) in Kuala Langat has been substantially developed with the remaining 208 acres mostly earmarked for commercial development. The group’s high-rise residential developments in BSP that were launched in 2013 have recorded lower sales than its landed properties. In addition, the group’s high-end properties in D’Island Residences, Puchong, has experienced weak response that led to launch deferments in 2013. The medium- and low-cost property launches in Batu Pahat and shop-apartment unit project in Cameron Highland registered modest average take-up rates of 48% and 60% respectively as at end-January 2014.
MARC observes that the overall slower take-up rates is attributable to tightening regulatory measures imposed on the property sector. Nonetheless, the gross development value of RM1.7 billion for ongoing projects and unbilled sales of RM649.6 million as at end-January 2014 should provide earnings visibility to the group in the near term. MARC notes that LBS Bina has a sizeable land bank, including about 290 acres in the Puchong township, that should sustain development activities over the medium term. The group’s future developments are also likely to feature a higher proportion of affordable housing units for which the response is expected to be stronger. 
LBS Bina’s cash balances have strengthened following the disposals of its China-based subsidiaries for HK$1.65 billion in financial year ended December 31, 2013 (FY2013). The disposal proceeds consist of HK$1.35 billion (RM557.5 million) in cash and a 16.8% equity interest worth HK$300 million (RM123.9 million) in Hong Kong Stock Exchange-listed Zhuhai Holdings Investments Group Ltd. To date, LBS Bina has received HK$500 million (RM206.5 million) in cash with the remainder to be paid in four annual instalments beginning December 2014. Proceeds from the disposals have enabled the group to reduce its overall bank borrowings, which stood at RM383.1 million as at FY2013 (FY2012: RM429.3 million), and undertake land acquisitions, namely the proposed acquisitions of 4.3 acres in Iskandar Malaysia for RM71.8 million (at RM380.7 psf) and 6.3 acres in Kota Kinabalu for RM72.5 million (at RM266.3 psf).
For FY2013, LBS Bina’s operating profit rose significantly to RM441.8 million largely due to a gain of RM341.6 million on disposal of its China-based subsidiaries. On excluding the one-off gain, the group’s revenue and operating profit would register a slower growth of 4.7% and 7.1% to RM533.5 million and RM100.2 million respectively (FY2012: 19.8%, 9.9%). Land acquisitions and property development costs led to a decline in cash flow from operations to RM41.2 million in FY2013 (FY2012: RM124.4 million). MARC notes with concern that the group’s current trade and other payables have increased to RM449.4 million (FY2012: RM239.8 million). In addition to payables for land acquisitions, the increase is partly due to payables of a newly consolidated subsidiary, Lamdeal Investment Limited (LIL), in China. LIL has a 60% stake in Zhuhai International Circuit Limited (ZICL), a company that is involved in motor sports activities on a 264-acre racing track in Zhuhai. LBS Bina paid US$1.00 to acquire LIL, which has negative HK$50.5 million equity as at FY2013 (unaudited), largely due to the amortisation of the racing track land.
LBS Bina maintains unrestricted cash balances of RM212.2 million and unutilised credit lines of RM240.0 million as at December 31, 2013. Furthermore, the group is expected to raise about RM90.0 million from a private placement of LBS Bina shares which is expected to be completed by 2Q2014. Nonetheless, MARC expects liquidity to tighten from current levels due to substantial near-term payments for land acquisitions and obligations under the group’s sizeable trade and other payables. MARC notes that LBS Bina has been early redeeming a substantial amount of RM115 million under the rated programme since 2012, leaving an outstanding amount of RM20 million which will not be due until December 2016.
As LBS Bina’s ratings and outlook hinge on the guarantee provided by Danajamin, any rating action would be driven by changes in Danajamin’s credit strength.
Contacts:
Joan Leong, +603-2082 2270/ joan@marc.com.my;
Yap Lai Ken, +603-2082 2247/ laiken@marc.com.my.