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RAM Ratings reaffirms PKNS’s AA3/P1 sukuk ratings

Published on 17 Dec 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 mil ICP Programme (2013/2020) and RM1.7 bil IMTN Programme (2013/2033). The reaffirmation is premised on our opinion that PKNS’s strong balance sheet will keep acting as a cushion against any weakening of its cashflow debt coverage amid lacklustre property sales. The capex for its ongoing property projects is expected to be met by proceeds from various asset disposals, which are anticipated to fetch at least RM2 bil over the next three years – thus mitigating the need for debt funding in the medium term. 

The reaffirmation also reflects our view that PKNS will continue to benefit from the extraordinary support of the Selangor State Government (the State), underscored by the Agency’s role as the state economic development corporation and a provider of affordable housing. Under the State’s Rumah Selangorku affordable housing programme, PKNS has committed to delivering 30,000 units of affordable homes by 2030. Meanwhile, the State’s involvement with the Agency remains evident via the former’s supervision and representation on PKNS’s board.

As at end-June 2019, PKNS’s debt level and gearing ratio stayed largely unchanged at a respective RM1.8 bil and 0.29 times. Looking ahead, sizeable land sales in Bernam Jaya, the en bloc sale of Datum Jelatek, the disposal of the development rights over PJ Sentral Garden City and the potential sale of its 30% stake in the Shah Alam Expressway (KESAS) are envisaged to free up cashflow to fund the Agency’s ongoing property projects and potential new developments. 

Given its lacklustre property sales and weaker margins, however, we expect the Agency’s funds from operations debt cover to remain strained at below 0.10 times in the near term. In 1H fiscal 2019, PKNS incurred an operating loss amid the absence of land sales and the poor showing of some of its ongoing projects. Notably, the two new projects launched by the Agency in 9M 2019 have been receiving only tepid response due issues related to loan eligibility. We expect PKNS’s full-year performance to be subdued in fiscal 2019. That said, its pre-tax showing next year is anticipated to be boosted by various asset disposals. Maiden contributions from its Datum Incity JV will also support its financials to some extent. 

While PKNS’s land bank is expected to dip below 5,000 acres (end-June 2019: 8,020 acres) after the completion of its land sales in Bernam Jaya, the Agency is envisaged to keep deriving financial flexibility from its remaining unencumbered land bank. The Agency may enter into JVs with other developers and engage in privatisation deals to monetise its land holdings. Notably, its recently inked privatisation agreements (i.e. Datum Incity and Datum Bestari) entail minimal execution risk, given that PKNS’s contribution will solely be in the form of land. The requisite cash outlay to fund these developments will be borne by its JV partners. 

 

Analytical contact
Amy Lo 
(603) 3385 2509
amy@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
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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