MARC downgrades MK Land's
Malaysian Rating Corporation Bhd (MARC) has downgraded the ratings of MK
Land Holdings Bhd's RM300 million serial bonds tranche 1 and 2 to A- with a
MARC said on Jan 16 the downgrade is premised on weaker sales from the
Groupís Damansara Perdana and Damansara Damai projects which has contributed
to declining profits and margins and the soft property market outlook.
"The Negative Outlook reflects the challenges facing MK Land in meeting
sales targets due to the current weak market sentiment which raises concerns
over the Groupís ability to meet its debt obligations in 2007," it said.
MARC said exacerbating the situation has been the negative impact from the
late delivery of units in its Flora Damansara Development.
MK Landís core activities are property development, leisure and investment
holdings. The Group has a sizeable land bank amounting to 2,191.2 hectares
It is a leading property developer with projects in Selangor, Perak and
Kedah. Its flagship developments are Damansara Perdana and Damansara Damai
which have contributed significant revenues in the past due to their
locations and accessibility.
Take-up rates, however, have dipped significantly since the middle of 2005
for both developments.
MK Landís Armanee Terrace Condo 1B in Damansara Perdana has registered a
take-up rate of only 26.9% since its initial launch in June 2005 while its
Season Square Condo A in Damansara Damai has recorded a take-up rate of only
The same trend has been noted from the Groupís first quarter (1Q) FY2007
interim results. Sales continue to be weak with the Group recording only
RM14.9 million from these two projects.
The Sinking Fund Account (SFA) balance stood at RM26.1 million as at
November 28, 2006 which meets one of the two SFA requirements to cover the
bond redemption of RM50 million scheduled for September 2007.
MK Land is required to deposit RM30 million by May 2007 and an additional
RM25 million into the SFA by June 2007.
Under the issue structure, the Group is required to maintain sufficient
billings to reflect a security coverage ratio of 1.43x for the outstanding
bonds. With the outstanding bonds totalling RM170 million currently, this
translates to RM243.1 million of remaining billings. MK Land has represented
that it has met the security coverage requirement.
MK Land recorded a 54.9% drop in revenue to RM408.5 million in FY2006 with
PBT (profit before tax) also declined by 64.4% to RM58.6 million. Operating
margins reduced to 17.09% from 19.24% in FY2005.
During the year under review, the Group has made provision for liquidated
ascertained damages of RM13.4 million due to delays in completion of certain
phases in Damansara Perdana and Damansara Damai.
On a positive note the Groupís leverage levels continue to remain low at
0.41 times, well below the covenanted level of 2.5 times.
Going forward, MARC is concerned that the weak property market outlook into
2007 may continue to impact sales for the Group which will lead to
shortfalls in the SFA and difficulty in maintaining the minimum security