Posted Date: December 16, 2020
Fortune Premiere’s rating reflects the credit strength of its parent company IOI Properties Group Berhad (IOI Properties) which has provided an unconditional and irrevocable corporate guarantee on the issuance. IOI Properties’ established brand name and strong track record in property development that have translated into healthy operating margins remain key rating drivers. Moderating the rating is the concern on the increase in the group’s property inventory levels if the property downturn is prolonged. In addition, the group’s borrowings, albeit on a decline, offer limited headroom in relation to the current rating band.
IOI Properties’ borrowings reduced to RM10.9 billion at end-June 2020 (FY2020) from RM11.3 billion a year earlier, translating into a lower debt-to-equity (DE) ratio of 0.57x from 0.60x. Funding for the group’s SGD3.7 billion Grade A office towers in Central Boulevard, Singapore accounted for the bulk of group borrowings. The project is estimated to have a net lettable area of about 1.3 million sq ft and is expected to be completed by 2023. The project’s remaining SGD418 million construction cost would be met largely from sales of proceeds of remaining units from its completed projects in Singapore.
IOI Properties launched eight domestic projects in FY2020 with a combined gross development value (GDV) of about RM920.3 million; however, the take-up rate has been modest at 52.3% given the prevailing weak property market. In contrast, its mixed development projects in Xiamen, China have continued to register favourable sales performance, offsetting the weaker domestic sales performance that had been impacted by the movement restrictions imposed between March and June 2020. Projects in Xiamen contributed 48.1% of the combined RM1.6 billion property development revenue for FY2020.
Operating cash flow has remained healthy at RM977.0 million, driven largely by sales from its Xiamen projects. The sale of completed units also supported cash flow generation, although the high inventory level at RM2.2 billion would continue to weigh on its working capital requirements. Nevertheless, liquidity is strong, as reflected by a cash balance of RM1.47 billion coupled with its available credit lines. MARC understands that the group may consider refinancing its near-term loan obligations of RM1.1 billion.
The stable outlook incorporates expectations that the group will maintain its key credit metrics, including its leverage position, that are commensurate with the current rating band. The rating and/or outlook would come under pressure if inventories continue to build up such that it may increase its leverage position to fund its ongoing projects.