RAM Ratings has assigned a AAA(fg)/stable rating to Puncak Wangi Sdn Bhd’s (Puncak Wangi or the Company) Proposed Guaranteed IMTN Programme of up to MYR 200 million in nominal value (2014/2022) (Proposed IMTN). The enhanced rating reflects an irrevocable and unconditional Al-Kafalah Facility from Danajamin Nasional Berhad (Danajamin, rated AAA/stable/P1 by RAM). The financial guarantee enhances the credit standing of the Proposed IMTN beyond Puncak Wangi’s credit profile.
Puncak Wangi is wholly-owned by Malaysian Resources Corporation Berhad (MRCB) and is undertaking the construction of an office building in Petaling Jaya (the Office Tower or the Project). Upon completion, the building is to be leased to Celcom Axiata Berhad (Celcom) for an initial period of 15 years, with 2 automatic 3-year extensions.
As a single-project company, Puncak Wangi will heavily depend on cashflow from the Project to repay its borrowings. Given the greenfield status of the Project, Puncak Wangi is exposed to construction risk, the implication of which would be the non-execution of the Lease Agreement. Nevertheless, the main contractor of the Project, Gelanggang Harapan Construction Sdn Bhd, is wholly-owned by MRCB. Further, MRCB has undertaken to ensure the Project’s timely completion and to meet any cost overruns, in addition to providing guarantees on the payments of the Proposed IMTN (made to Danajamin) and a RM220 million term loan facility for the funding of the Project. Notwithstanding the strong parental support, the management plans to dispose the Office Tower during the lease period to repay Puncak Wangi’s debts.
Puncak Wangi is expected to be highly leveraged as the Project is largely debt-funded. The Company’s gearing ratio is projected to gradually increase from 0.92 times in 2014 and peak at over 4 times once all borrowings are fully drawn down in 2016. Its operating cash flow debt coverage ratio is expected to hover at a low 0.08 times upon commencement of the lease and throughout the tenure of the Proposed IMTN. Elsewhere, there will be a lumpy repayment on most of the principal amounts of both the Proposed IMTN and the term loan at the end of their tenures and Puncak Wangi’s ability to meet these obligations hinges on the disposal of the Office Tower. Should the disposal not go through, these borrowings would need to be refinanced.
The company’s key strengths are the predictable revenue stream from Celcom – a strong counterparty – and the Project’s strategic location which provides excellent visibility. Under the terms of the Agreement to Build and Lease between Puncak Wangi and Celcom, the two parties would execute the Lease Agreement upon the building’s completion, after which the Company will enjoy stable and predictable lease rentals over 15-21 years. Although the execution of the Lease Agreement is contingent on the completion of the Project, RAM Ratings opines that execution is likely, unless the Office Tower is significantly off-specification or construction progress is extensively delayed.
The Office Tower, part of the PJ Sentral development project, is situated in the prime commercial hub of Petaling Jaya, with access from Federal Highway Route II. Located in proximity to the Office Tower are hotels, government offices and administrative departments, mature commercial and residential developments, and the Taman Jaya Light Rail Transit Station. While its location is an advantage to the Office Tower, given that it is a high-density development project, traffic conditions around the area would have to be improved for better accessibility.
Originally published on www.cpifinancial.net