profile search
latest updates
Press Release
22 Jan | Monday
RAM Ratings assigns final AA3(s) rating to Medini Iskandar’s Proposed Sukuk Programme

RAM Ratings has assigned a final AA¬3(s)/Stable rating to Medini Iskandar Malaysia Sdn Bhd’s (MIMSB or the Group) proposed 15-year RM1.5 billion Sukuk Murabahah Programme (Proposed Sukuk Programme).

MIMSB is the master developer of Medini Iskandar Malaysia (Medini), a 2,230-acre township set in the heart of Iskandar Puteri – one of the flagship zones under the broader Iskandar Malaysia economic region in the state of Johor. 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 RM1.4 billion 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 Berhad – the Government of Malaysia’s strategic investment fund. 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. Meanwhile, the expertise of MIMSB’s 2 other major shareholders, UWI Holding Limited 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. 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. 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 gross floor area (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. 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.

Over the 2018-2026 period, MIMSB aims to complete new property development projects with a total GFA of about 12 million sq ft. To fund these, it plans to raise about RM1.15 billion 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 1 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 RM1.1 billion.

As each planned development is expected to take about 2-3 years to complete, returns from the expansion of MIMSB’s property development portfolio are likely to gain traction only after 2021. 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.

Analytical contact
Chuan Shyang Lin
(603) 7628 1068
shyanglin@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

Date of release: 22 January 2018

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 2018 by RAM Rating Services Berhad’s

Print Mail Twitter LinkedIn Facebook Google+
Past Articles
2018
June
May
April
March
February
January
2017
December
November
October
September
August
July
June
May
April
March
February
January
2016
December
November
September
July
June
May
April
March
2015
June
May
April
March
February
January
2014
December
November
October
September
August
July
June
May
April
March
February
January
2013
December
October
July
May
April
March
2012
December