Naim’s proposed RM500 million debt facilities assigned AA3/P1 ratings

KUALA LUMPUR: RAM Ratings has assigned respective long- and short-term ratings of AA3 and P1 to Naim Cendera Holding Bhd’s proposed RM500 million Islamic Commercial Paper Programme and Islamic Medium-Term Notes Programme (ICP/IMTN), with the long-term rating having a stable outlook.
Proceeds from the proposed debt facilities will be used to refinance the group’s borrowings, for future capital expenditure and as working capital, said RAM Rating Services Bhd said in a statement yesterday.

Naim is one of the leading construction players in Sarawak. It had an outstanding order book of about RM1.24 billion as at end-December 2006, which ought to stretch over the next 3-4 years, it said.

For year-to-date (YTD) 2007, the group also secured new contracts with a total value of RM504.05 million, it added.

The allocation of RM15.11 billion for development projects in Sarawak under the Ninth Malaysia Plan (9MP) is a positive sign for the state’s construction industry, which in turn bodes well for Naim, it noted.

While the group is exposed to the vagaries of the Sarawak construction industry, RAM Ratings feels that Naim’s established track record as a Class A Bumiputera contractor, with close ties to the Sarawak government, puts it in good stead to secure more contracts under the 9MP.

Moving ahead, the construction division is expected to account for 50-60 percent of the group’s revenue over the next three years, it said.

It described Naim as one of the largest property developers in Sarawak, with low holding costs for a 960ha land bank that had been partly acquired via payment-in-kind arrangements, with a total gross development value of RM3.1 billion as at Dec 31, 2006.

Naim has a competitive edge against other developers in the state, as its cheap land bank enables it to launch more affordably priced products to suit market demand, RAM Ratings said.

The group’s strong presence in Sarawak is embodied by its ongoing residential developments – Bandar Baru Permyjaya in Miri as well as the Desa Ilmu and Riveria projects in Kota Samarahan, Kuching.

However, RAM Ratings noted that the deceleration of the Sarawak property market in the second half of 2005 and 2006 had affected the sales of more expensive semi-detached and detached houses.

Coupled with costlier building materials such as bitumen, cement and steel, this had adversely affected Naim’s property sales in 2006 and depressed the group’s operating profit before depreciation interest and tax (OPBDIT) margin to 18 percent from 20-30 percent during 2003-2005.

Nonetheless, with its larger order book, the group’s construction division overtook the property division in FY Dec 2006 in terms of revenue, accounting for 52 percent of Naim’s turnover and helping to partially offset the effects of the slower Sarawak property market.

RAM Ratings said the management of Naim has also intimated that the group plans to venture into property development and construction operations outside of Sarawak and Malaysia, although these have yet to be finalised.

Within Malaysia, the group has unveiled ambitious plans to expand its land bank, mainly in Sarawak, by more than 2,000ha in the next few years to cater for future property-development projects, it said.

At the same time, the group also plans to build up its portfolio of investment properties with the intention of injecting them into a real estate investment trust (REIT) and also to provide some recurring income, it said.

RAM Ratings said Naim has a fairly strong financial profile, characterised by a low debt level and strong liquidity – the group had RM5.51 million of debts against a substantial RM122.01 million of cash reserves as at end-December 2006.

Under RAM Rating’s sensitivity analysis, Naim’s debt load is expected to peak at RM500-600 million.

Consequently, the Group’s net gearing ratio is anticipated to rise to a maximum of 0.5 times over the next five years, which is manageable given the expected inflows from its construction order book and property developments.

Based on its sensitivity analysis, RAM Ratings also anticipates that the group’s annual OPBDIT-to-debt cover will be maintained at a minimum of 0.4 times over the next five years.