Posted Date: March 05, 2020

MARC has affirmed its AAIS rating on Fortune Premiere Sdn Bhd's RM3.0 billion Multi-Currency Islamic Medium-Term Notes Programme (Sukuk Murabahah). The rating outlook is stable.

Fortune Premiere is a funding vehicle for its parent IOI Properties Group Berhad (IOI Properties) which has provided an unconditional and irrevocable corporate guarantee on the rated sukuk. 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. In addition, its leverage as reflected by a debt-to-equity ratio of around 0.58x provides limited headroom at the current rating band level for any further sharp rise.

The majority of the group's borrowings was utilised for the SGD3.7 billion Central Boulevard project comprising two Grade A office towers in Marina Bay, Singapore. The towers, with a combined net lettable area (NLA) 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 longstanding experience in property development and by the tight supply of office space in the island state. 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%.

IOI Properties' ongoing domestic properties have registered a modest average take-up rate of 35.3%; for financial year ended June 30, 2019 (FY2019), nine domestic projects were launched with combined gross development value (GDV) of about RM791.3 million within its existing townships in Puchong and IOI Resort City. For its ongoing residential development in Xiamen, China which has a combined GDV of RMB1.2 billion, the average take-up rate was strong at 90%.

In 1HFY2020, the group's performance was affected by lower domestic sales; both revenue and operating profit declined by about 9% y-o-y to RM1.1 billion and RM462.6 million. The group's earnings remain supported by the higher margin offerings of its residential projects, particularly in Xiamen. Operating profit margin remained strong, standing at around 42%. 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.

Total borrowings continued to decline, standing at about RM11.0 billion as at end-1HFY2020 from RM12.5 billion at end-FY2017 when proceeds from the substantial increase was used to finance the acquisition of land amounting to SGD2.57 billion for the Central Boulevard project. The group's cash balance of RM1.5 billion as at end-December 2019 is supportive of near-term obligations.

The stable outlook incorporates MARC's expectation that the group will maintain discipline on its borrowing levels and that its key credit metrics will remain commensurate with the current rating band.

Raj Shankar, +603-2717 2956/ rajshankar@marc.com.my;
Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my

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