IOI Properties’ unit gets AAIS rating on RM3b sukuk

The key rating factors are the group’s established brand name and strong track record in property development

by NUR HANANI AZMAN/ pic credit: www.ioiproperties.com.my

MALAYSIAN Rating Corp Bhd (MARC) has affirmed its AAIS rating on IOI Properties Group Bhd’s wholly owned unit’s RM3 billion multi-currency Islamic medium-term notes programme (sukuk murabahah).

The facility is issued by Fortune Premiere Sdn Bhd, a funding vehicle for IOI Properties, which has provided an unconditional and irrevocable corporate guarantee on the rated sukuk.

“The rating outlook is stable,” MARC said, adding that this incorporates MARC’s expectation for the group to maintain discipline on its borrowing levels and that its key credit metrics will remain commensurate with the current rating band.

Accordingly, the rating considers the parent’s credit strength.

“The key rating factors are IOI Properties’ established brand name and strong track record in property development, characterised by healthy operating margins that continue to provide a buffer against lower sales performance.

“The rating is moderated by concerns that a prolonged property downturn would aggravate the group’s inventory level which, despite recent increases, remains manageable at this juncture,” MARC said in a statement.

In addition, its leverage as reflected by a debt-to-equity ratio of around 0.58 times provides limited headroom at the current rating band level for any further sharp rise.

Fortune Premiere made its third sukuk issuance of RM1.2 billion in nominal value under its sukuk murabahah programme in September 2018.

According to MARC, the majority of IOI Properties’ borrowings were utilised for the S$3.7 billion (RM11 billion) Central Boulevard project comprising two Grade A office towers in Marina Bay, Singapore.

The towers, with a combined net lettable area of 1.3 million sq ft, is the group’s single largest project and is expected to be completed by end-2022.

“Completion and demand risks are mitigated by the group’s long-standing experience in property development and by the tight supply of office space in the island state,” the ratings firm said.

On completion, the office towers will add to IOI Properties’ portfolio of investment properties that includes three shopping malls, which have an average occupancy level of 92%.

The developer’s ongoing domestic properties have registered a modest average take-up rate of 35.3%. In the financial year ended June 30, 2019 (FY19), it launched nine domestic projects with combined gross development value (GDV) of about RM791.3 million within its existing townships in Puchong, Selangor, and IOI Resort City in Putrajaya.

For its ongoing residential development in Xiamen, China, which has a combined GDV of 1.2 billion yuan (RM719 million), the average take-up rate stood at 90%.

In the first half of 2020 (1H20), the developer’s performance was affected by lower domestic sales, leading both revenue and operating profit to decline by about 9% year-on-year to RM1.1 billion and RM462.6 million respectively.

The group’s earnings remain supported by the higher-margin offerings of its residential projects, particularly in Xiamen, while operating profit margin remained strong at around 42%, MARC noted.

“IOI Properties’ inventory level, mainly domestic properties, remained high, standing at about RM2.05 billion at end-June 2019.

“MARC notes that the reduction in inventory level has been offset by new addition, although the pace of increase is expected to decline going forward,” it said.

The group’s total borrowings continued to decline, coming in at about RM11 billion as at end-1H20 from RM12.5 billion at end-FY17, when proceeds from the substantial increase was used to finance the S$2.57 billion acquisition of land for the Central Boulevard project.

Its cash balance stood at RM1.5 billion as at end-December 2019, which MARC said is “supportive of near-term obligations”.

IOI Properties currently has several developments in Selangor, Penang, Negri Sembilan and Johor Baru, as well as projects in China and Singapore.

It’s eyeing RM2 billion in sales from its various developments and new launches for FY20, with a target composition of 50% sales coming from Malaysia and another 50% from its business overseas.

Shares of IOI Properties closed half a sen or 0.5% higher at RM1 yesterday, for a market capitalisation of RM5.51 billion.