MARC has affirmed its ratings on Berjaya Land Berhad’s
(BLand) outstanding RM500.0 million Medium-Term Notes (MTN) Programme
guaranteed by Danajamin Nasional Berhad (Danajamin) at AAA(fg)
and RM150.0 million MTN Programme guaranteed by OCBC Bank (Malaysia) Berhad
(OCBC Malaysia) at AAA(bg). The outlook for
the ratings is stable.
The affirmed ratings reflect the unconditional and
irrevocable guarantees provided by Danajamin and OCBC Malaysia respectively.
Danajamin carries a financial insurer rating and counterparty rating of
AAA/Stable while OCBC Malaysia has a public information rating of AAA/Stable
from MARC.
BLand is an intermediate investment holding company of
Berjaya Group with interests in gaming, motors, properties, hotels and
recreation. Its standalone credit profile remains weighed down by the
challenging prospects for the domestic property industry, its sizeable debt and
modest earnings from its non-gaming subsidiaries. BLand continues to rely on
asset disposals to meet its principal financial obligations. The sale of its
China Great Mall project in Beijing during financial year ended April 30, 2016
(FY2016) for RM680.9 million and half of its 100% stake in Berjaya Kyoto
Development Pte Ltd, the developer of Four Seasons Hotel and Residence in
Kyoto, for RM404.5 million enabled BLand to repay a net debt of RM323.2 million
during the period. With the repayment, group borrowings declined to RM3.6
billion, resulting in a lower debt-to-equity ratio of 0.44 times as at end-July
2016.
MARC notes that despite the success of BLand’s hotel
development in Kyoto, its other foreign property projects remain exposed to
cross-border risks. The group’s mixed development project in Ho Chi Minh City,
Vietnam has encountered delays due to regulatory approvals in the country. Its
Jeju Island development project in South Korea has been suspended, following
which BLand has managed to recover RM374.5 million through the sale of land to
its local joint venture partner. It expects to recover the remaining RM646.0
million of its initial investment in the Jeju Island project through legal
proceedings. The cross-border risks notwithstanding, BLand’s overseas projects would continue to provide
the group with opportunities to realise meaningful gain on investments.
MARC observes that BLand's domestic property
developments have remained subdued, with its focus remaining on ongoing
projects in Bukit Jalil, Kuala Lumpur, and Georgetown, Penang. These projects
have combined contracted sales of RM366 million and are expected to be
completed in FY2018. The performance of its hotel, club and recreation
divisions has remained weak despite some improvement in 1QFY2017.
BLand’s consolidated financial profile remains dominated
by subsidiary Berjaya Toto Berhad (BToto), which accounted for about 95% of
operating profit for 1QFY2017. BToto’s key subsidiaries are Sports Toto
Malaysia Sdn Bhd (Sports Toto), a leading operator of number forecast
operations (NFO) in Malaysia, and H.R. Owen Ltd, a motor retailing company in
UK. Sports Toto’s significant cash generation ability, with cash flow from
operations averaging around RM350 million per annum over the last five years,
underpins MARC’s AA-/Stable rating on the gaming company’s RM800 million MTN
programme. The motor retailing subsidiary continues to face low margins, with
contributions to operating profit remaining low.
For 1QFY2017, BLand recorded higher y-o-y revenue of
RM1.55 billion but weaker operating profit of RM115.6 million (1QFY2016: RM1.50
billion; RM145.1 million). The revenue improvement was mainly due to higher
sales recorded by H.R. Owen Ltd in conjunction with its introduction of new car
models. However, higher operating expenses and lower progress billings from
property development operations reduced BLand’s profitability in 1QFY2017.
At the holding company level, BLand continues to
derive the bulk of its dividend income from BToto amounting to RM89.2 million,
or 64% of the total of RM139.6 million in FY2016. This was sufficient to meet
interest payments on the holding company debt of RM1.2 billion, or 35% of the
group’s consolidated debt of RM3.6 billion. CFO interest cover stood at 4.69
times at the consolidated level and 1.77 times at the holding company level.
The rated RM650 million MTN programme is fully drawn down, with the first
repayment of RM275.0 million scheduled in December 2017, which could be rolled
over under the programme.
Notwithstanding BLand’s standalone risk factors,
noteholders are insulated from the downside risk related to the credit profile
of BLand by the guarantees provided by Danajamin and OCBC Malaysia. Any change
in the supported ratings or rating outlook would be primarily driven by changes
in the credit strength of the guarantors.
Contacts: Cheah Wan Kin, +603-2082 2232/ wankin@marc.com.my; Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my.
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