KUALA LUMPUR: RAM Ratings has assigned a final AA3(s)/Stable rating to Medini Iskandar Malaysia Sdn Bhd’s (MIMSB) proposed 15-year RM1.5bil Sukuk Murabahah programme.
The rating agency said on Monday MIMSB is the master developer of Medini Iskandar Malaysia (Medini) -- a 2,230-acre township set in the heart of Iskandar Puteri. It is one of the flagship zones under the broader Iskandar Malaysia economic region in Johor.
Over 2018 to 2026 period, RAM Rating said MIMSB aims to complete new property development projects with a total gross floor area (GFA) of about 12 million sq ft.
“To fund these, it plans to raise about RM1.15bil via the proposed Sukuk programme.
“For comparison, the group’s current portfolio of completed developments comprises properties with a GFA of about 282,000 sq ft (with about one million sq ft more of properties under construction).
“Based on the planned drawdown and repayment schedule, MIMSB’s borrowings are anticipated to peak at about RM1.1bil.
“As each planned development is expected to take about two to three years to complete, returns from the expansion of MIMSB’s property development portfolio are likely to gain traction only after 2021,” it said.
RAM Rating pointed out annual funds from operations debt coverage is expected to average below 0.10 times, and MIMSB will not generate any free operating cashflows until around 2020.
As most of the group’s new projects are still at the planning stage at this juncture, and in view of the sizeable ramp-up in expected investments, MIMSB’s future financial projection remains fluid.
To recap, Medini has been positioned as the central business district of Iskandar Puteri and located close to the first LegoLand theme park in Asia, Medini is also strategically surrounded by other landmark developments such as Educity, Pinewood Iskandar Malaysia Studios, Kota Iskandar, Puteri Harbour and Horizon Hills.
About RM1.4bil has been invested on developing infrastructure in Medini, which will be beneficial to future developments in the township.
“We have assessed MIMSB as a government-linked entity (GLE) by virtue of the 52% effective stake in the Group held by Khazanah Nasional Bhd – the Government of Malaysia’s strategic investment fund,” it said.
Based on RAM’s GLE rating criteria, MIMSB is deemed to benefit from its important role as the master developer of Medini (a key component of Iskandar Malaysia, where Khazanah is heavily invested) as well as the Group’s very strong relationship with Khazanah.
The resulting uplift is a key factor supporting MIMSB’s credit risk rating.
The expertise of MIMSB’s two other major shareholders, UWI Holding Ltd and Mitsui & Co. Ltd. (which have a 20% stake each), is complementary to Khazanah and the Group.
The (s) suffix attached to the rating reflects the well-secured nature of the sukuk to be issued under the proposed programme.
RAM Ratings pointed out the terms of the proposed Sukuk Programme require MIMSB to pledge assets with a market value of at least 1.67 times the sum of any outstanding sukuk throughout the tenure of the programme.
The group may discharge/substitute these assets from time to time on condition that the security coverage and rating are not affected.
Any issuance under the proposed sukuk programme will also be subject to a rating reaffirmation which will take into account, among other factors, the adequacy of security coverage and the assets pledged as collateral.
“On a stand-alone basis, MIMSB’s credit profile is supported by its unique position as the master developer of Medini.
“The township, which has been cited as Khazanah’s ‘centrepiece of strategic initiatives in the area’, is a prominent and integral part of Iskandar Malaysia.
“Besides its strategic location, Medini enjoys a host of fiscal and non-fiscal incentives unique to the region, underscoring its importance to the federal and state governments,” it said.
The group’s profile is also backed by its access to a large developable area in the prime economic region.
MIMSB has land leases with an approved GFA of about 45 million square feet (sq ft) that it may directly develop on its own or through joint ventures and/or sell to other developers.
On the other hand, MIMSB’s stand-alone credit profile is impacted by its short track record in property development.
The group became directly involved in property development only after 2012, after successfully facilitating the delivery of infrastructure in Medini.
"Looking ahead, MIMSB will be gearing up to fund its own medium- and long-term development plans; the group’s leverage and cashflow debt coverage metrics will weaken as a result," said RAM Rating.
In the medium term, the group will remain dependent on “non-operating” sources of funds to meet its operational needs and financial obligations.
On balance, the group’s large land bank provides it some flexibility in this regard. It may dispose of some of its land leases and/or pledge these as collateral to raise additional funds.
Given its highly defined role, MIMSB’s business focus is inevitably restricted to Medini, leaving the group susceptible to any adverse developments in the area.
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