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RAM Ratings reaffirms PKNS’s sukuk ratings

Published on 11 Jan 2019.

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RAM Ratings has reaffirmed the AA3/Stable/P1 ratings of Perbadanan Kemajuan Negeri Selangor’s (PKNS or the Agency) RM300 million ICP Programme (2013/2020) and RM1.7 billion IMTN Programme (2013/2033), which have a combined limit of RM1.7 billion. The reaffirmation reflects our view that PKNS has maintained a healthy balance sheet with good short-term liquidity to meet its debt obligations. The Agency’s top-line performance and profitability are also in line with our expectations despite the difficult market conditions. 

As opposed to private property developers, the Agency is tasked to carry out the Selangor State Government’s (SSG) property development and socio-economic agenda, providing affordable houses and promoting growth in less developed areas within Selangor. As such, PKNS’s ability to determine its property mix and pricing is somewhat constrained by its public-policy role. Despite being financially self-sufficient, we believe PKNS enjoys a moderate likelihood of support from the SSG in times of need, premised on its strong relationship with the latter. The SSG’s involvement with the Agency remains evident via the former’s supervision and representation on PKNS’s board. 

PKNS’s vast undeveloped land bank of about 9,182 acres also accords financial flexibility. The Agency can develop the land on its own or it may enter into JVs with other developers and engage in privatisation deals to monetise its land holdings. Notably, PKNS has revamped its approach to delivering its high-end projects, by forming JVs and partnerships with other developers to reduce execution risk, expedite returns and ease its capital commitments. The Agency’s substantial amount of investments in associate companies further diversifies its business risk, providing returns in the form of dividends and these investments can be disposed for cash if required.

In line with our expectation of a softer property market, PKNS’s top line slipped 6.4% y-o-y in 1H FY Dec 2018. Nevertheless, operating profit before depreciation, interest and tax (OPBDIT) surged 174.6% y-o-y during the same period, supported by broader margins from land sales and cost-cutting measures.  

As at end-June 2018, PKNS’s debt level stood at RM1.62 billion, a significant hike from RM1.1 billion as at end-December 2016. Consequently, its OPBDIT debt cover declined from 0.14 times in FY Dec 2016 to 0.10 times in both FY Dec 2017 and 1H FY Dec 2018. Despite the weak debt coverage, PKNS’s balance sheet remains strong, with a gearing and net gearing ratio of 0.27 and 0.19 times, respectively. We remain cautious that a heftier-than-expected increase in the Agency’s debt load may exert pressure on its ratings. However, the need for additional debt funding may be reduced by the sale of land or through privatisation of PKNS’s projects to free up its cash-flow and fund its capital commitments. 

Moving forward, the property market is envisaged to remain challenging. That said, PKNS is well poised to benefit from the various incentives announced under the recently unveiled Budget 2019, which focuses more on affordable housing development and promoting home ownership among the masses. 

 

Analytical contact
Yip Chee Meng
(603) 7628 1187
cmyip@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad



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