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).

Published on 20 September 2016

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.

Excluding the guarantee, Puncak Wangi is highly susceptible to risk arising from the delay in the construction of its 32-storey office building (Office Tower or the Project) under an Agreement to Build and Lease (ATBL) with Celcom Axiata Berhad (Celcom). As at 25 June 2016, the Project was 71.58% complete (based on an end-September timeline), albeit behind schedule. Nevertheless, the gap had narrowed from 34.52% as at end-September 2015 in view of time extensions granted by Celcom up to 31 December 2016 (from end-July 2016 initially and 30 September 2016 subsequently). Given the extensions and ongoing negotiations with Celcom on additional works to the Office Tower, the likelihood of a termination of the ATBL is viewed as having substantially reduced, although not being fully discounted.

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 RM165.91 million as at end-December 2015, but is expected to peak at RM420 million by end-2016 as the Company fully draws down its debt facilities to complete construction. The Company’s gearing ratio is anticipated to exceed 4 times.

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 loan. The management aims to dispose of the building and use the proceeds for the early redemption of the facilities. Given the long-term lease with Celcom upon the Project’s completion, and the intention of its parent, Malaysian Resources Corporation Berhad (MRCB or the Group), to inject its investment properties into the Group’s REIT, the likelihood of the building’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, with two 3-year renewals, upon project completion. In the event of an early termination of the lease agreement by Celcom, the latter would still have to settle all lease obligations for the remaining tenure of the lease. As a condition for the extension of time, however, rental will commence 1 month from completion of physical relocation as opposed to 7 days from vacant possession previously.

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.

Analytical contact                                         Media contact
Karin Koh, CFA                                               Padthma Subbiah
(603) 7628 1174                                             (603) 7628 1162
karin@ram.com.my                                         padthma@ram.com.my