Posted
Date: February 17, 2017
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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