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RAM Ratings reaffirms AAA(fg) rating of guaranteed sukuk issued by MRCB subsidiary Puncak Wangi

Published on 17 Jul 2019.

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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 by RAM), which enhances the credit standing of the IMTN beyond Puncak Wangi’s stand-alone credit strength. Puncak Wangi, a property investment company wholly owned by Malaysian Resources Corporation Berhad (MRCB or the Group), has signed an Agreement to Build and Lease (ATBL) an office tower (Office Tower or the Project) to Celcom Axiata Berhad (Celcom).  

The construction and interior design (ID) works of the Office Tower were fully completed in April 2019. The completion date of ID works had been delayed from our last expected September 2018, owing to further changes requested by Celcom. To enable Celcom to move in earlier, Puncak Wangi has signed two temporary Tenancy Agreements with the former to lease out an estimated 80% of office space, with lease commencement dates ranging from 18 September 2018 to 15 December 2018. We note that a long-term Lease Agreement, which will mirror the terms of the ATBL, has yet to be signed by the two parties pending the issuance of a Certification of Completion and Compliance (CCC) for additional ID works requested by Celcom. The Lease Agreement is envisaged to be signed in the middle of 2H FY Dec 2019 post-issuance of the CCC by the authorities.

Puncak Wangi’s stand-alone credit profile is constrained by a high leverage level, given that the bulk of the Office Tower’s development cost is being funded by the IMTN and bank loans. Puncak Wangi’s debt stood at RM438.01 million as at end-December 2018, corresponding with a gearing ratio of 10.93 times (end-December 2017: 7.55 times). We expect gearing to peak at 11 times as the Company draws an additional RM45 mil from the IMTN Programme in FY Dec 2019 to fund remaining construction costs. 

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 loans. The injection of the asset into MRCB-Quill REIT remains an option. Under our stressed scenario, the Company’s debt obligations are envisaged to be repaid in FY Dec 2021 following the disposal of the office building by March 2021. As such, Puncak Wangi will have to roll over the IMTN due in November 2019.

The Company’s stand-alone profile is supported by stable rental income from Celcom for a period of 15 years following the Project’s completion, or longer should the latter choose to exercise its option to extend the lease for two three-year terms. In the event that Celcom terminates the Lease Agreement before expiry, it would still have to settle all lease obligations for the remaining tenure of the agreement. 

The Office Tower is strategically located within the prime commercial hub of Petaling Jaya and enjoys good visibility from Federal Highway Route II – Klang Valley’s main thoroughfare. 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
Thong Mun Wai
(603) 3385 2522
munwai@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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