MARC Ratings has assigned a preliminary rating of AIS to HCK Cap Access Berhad’s proposed Islamic Medium-Term Notes (IMTN) Programme of up to RM2.0 billion with a stable outlook. HCK Cap Access is a wholly-owned funding vehicle of HCK Capital Group Berhad (HCK). The programme allows for the issuance of senior IMTN and/or subordinated perpetual Islamic notes; the assigned rating only applies to senior IMTN under the programme. The initial issuance under the programme is expected to be up to RM200.0 million.
The assigned rating considers HCK’s steady growth in its business and financial performance (albeit revenue remaining at a moderate level), good operating margins from employing technology in business processes, and the potential for stronger growth from planned property launches in the Klang Valley. The rating is, however, weighed down by risks associated with commencing new developmental activities and a highly leveraged balance sheet structure that suggests funding projects through further borrowings would keep leverage at an elevated level.
HCK is currently focused on high-rise mixed developments that are located close to educational institutions. Of these is the SEGI University Group, one of the largest private educational institutions in the country in which the founder, majority shareholder and executive chairman of HCK, Tan Sri Clement Hii Chii Kok, has significant interest. MARC Ratings views that given Tan Sri Clement Hii’s status as a prominent businessman, he would be able to continue to provide impetus to support HCK’s growth. The rating agency also expects any potential issues arising from conflicts of interest between his various businesses would be addressed.
Stemming largely from their locations, HCK’s three ongoing developments have recorded strong response by catering to the accommodation needs of, and capturing footfall from, students and professionals from the educational institutions. Of the total launched gross development value (GDV) of RM2.0 billion, its developments Edusentral in Setia Alam (ongoing GDV of RM188 million), Edumetro in Subang Jaya and Edusphere in Cyberjaya (ongoing GDV of RM125 million) have achieved a combined take-up rate of around 93% as at November 15, 2024. Nonetheless, the rating agency also notes that unbilled sales stood at a modest RM76.6 million with the majority of ongoing phases reaching their tail ends. Unsold inventory level stood at about RM77.6 million as at November 15, 2024.
Over the immediate-to-intermediate term, HCK has total planned launches worth RM2.1 billion in GDV, 86% of which are new residential and commercial developments, namely eSentral Damansara West, Sungai Buloh; U9 Residence Heights, Shah Alam; HCK Tower and Perdana Peak Suites, Petaling Jaya; Hiijauan Lakecove, Dengkil; and Hiijauan Broga, Semenyih. Sales would benefit from the projects’ good accessibility via expressways in the Klang Valley and the projects’ mid-range pricing, with high-rise residential units priced between RM250,000 and RM750,000. Nonetheless, MARC Ratings notes that as these new developments do not benefit from a captive market compared to HCK’s current projects, the developments would be more susceptible to market risks.
To strengthen its balance sheet, MARC Ratings understands that the majority of HCK’s outstanding warrants of RM81.2 million are expected to be converted. HCK also has an outstanding amount owed to its director amounting to RM113.3 million, RM100.0 million of which will be settled through the issuance of ordinary shares to the director by December 2024. Assuming full conversion/settlement of the above and an initial sukuk drawdown of RM200.0 million for its planned launches, debt-to-equity ratio would be maintained at around 0.80x. Over the last five years, HCK has raised RM124.2 million in new shares from warrant exercises, underscoring its shareholders’ commitment. Impact from issuances under the unrated perpetual sukuk programme would be assessed upon each issuance, considering the characteristics of the perpetual sukuk which will determine equity credit to be accorded.