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MARC affirms ratings on Mega Palm's RM150m debt notes

KUALA LUMPUR: Malaysian Rating Corporation Bhd (MARC) has reaffirmed its ratings on property developer Mega Palm Sdn Bhd's debt note totaling RM150 million.

It said on Wednesday, Oct 5 the ratings involved Mega Palm's bank guaranteed medium term notes (MTN) of up to RM70 million and bank guaranteed commercial papers (CP) of up to RM80 million respectively.

"The outlook for the ratings is stable. The rating action affects outstanding the MTN of RM10.0 million and CP of RM46.8 million," it said.

MARC said the affirmed ratings and stable outlook reflected itsratings of AAA/MARC-1 on Malayan Banking Bhd (Maybank), which has provided an unconditional and irrevocable guarantee on the MTN and CP.

Maybank's ratings reflect the bank's entrenched market position as the largest commercial bank in Malaysia, its established franchise, its sound asset quality and its favourable financial profile.

Mega Palm is the developer of a Country Heights Damansara, a 196-acre high-end residential project located along SPRINT highway in Kuala Lumpur.

"Operating trends were somewhat more positive in 2010 with sales of bungalow lots faring better. The number of bungalow lots sold increased to 19 from 10 in the previous year due to more competitive pricing.

"New homes sales, however, remained sluggish; since the project's launch in 2001, only six units of bungalows have been sold to date," it said.

MARC said Mega Palm had revised its development plan for Country Heights Damansara to provide for the sale of a 13.4 acre land parcel that was previously held for cluster bungalow development.

The rating agency said with the change in development plans, the project has 19.8 acres of remaining land to develop with an estimated gross development value of RM230.0 million.

"MARC believes that revenue from land sales will continue to be the primary contributor to Mega Palm's earnings and cash flow for the foreseeable future," it said.

On the financial health of the company, it said Mega Palm's revenues almost doubled to RM63.1 million for the 12 months ended Dec 31, 2010 (FY2010) (FY2009: RM32.7 million) while its pre-tax profit rose to RM19.0 million in FY2010 (FY2009: RM6.3 million).

Mega Palm's debt-to-equity ratio declined to 0.83 times (FY2009: 1.01 times) on the back of a repayment of RM5.0 million CP during the year.

With its redemption of MTN amounting to RM30.0 million on May 25, 2011, Mega Palm's debt-to-equity would improve to 0.54 times on a pro-forma basis. Mega Palm's financial flexibility remains modest as implied by its internal liquidity position; only RM14.5 million of its total cash position of RM44.3 million is unencumbered.

MARC pointed out the MTN and CP noteholders were insulated from downside risks in relation to Mega Palm's credit profile by virtue of the guarantees provided by Maybank.

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