[RAM] RAM Ratings assigns AAA/Stable and P1 ratings to Pelaburan Hartanah Berhad's sukuk programmes

RAM Ratings has assigned respective long- and short-term ratings of AAA/Stable and P1 to Pelaburan Hartanah Berhad’s (PHB or the Group) Islamic Medium-Term Notes (IMTN) Programme and Islamic Commercial Papers (ICP) (combined limit of RM5 bil) (the Sukuk). 

PHB intends to issue up to RM1.5 billion from the Sukuk Programmes, mainly to refinance its existing borrowings (76%) and fund capital expenditure and working capital (24%). Refinancing of existing borrowings would help PHB reduce its borrowing costs, which is expected to improve its bottom line. The Sukuk may also be issued as Sustainable and Responsible Investment (SRI) sukuk. PHB was assigned a Gold3 (G3) Sustainability Rating by RAM Sustainability on 29 April 2024. 

The ratings reflect PHB’s strong mandate and demonstrated support from the Malaysian government to increase bumiputera ownership and participation in the country’s commercial real estate sector through its management of unit trust fund Amanah Hartanah Bumiputera (AHB or the Fund). PHB currently owns 25 completed property assets (of which, 21 are under AHB), cumulatively valued at around RM7.22 bil and diversified across five sectors (office, retail, warehouse, healthcare and education).

Given its mandate, we view the Group as a key agency in the national development agenda to advance the bumiputera community, underscoring its important role to the government, both politically and institutionally. PHB’s board of directors and, by extension, committee members, consists of sector professionals from other government-linked corporations and a Ministry of Finance representative. Its operations come under the supervision of Ministry of Finance (Incorporated). 

While currently an entity under Yayasan Amanah Hartanah Bumiputera, PHB will soon become a subsidiary of Yayasan Pelaburan Bumiputera as the government consolidates several bumiputera-focused investment institutions under one body. The Group will nevertheless remain indirectly government-owned, a requirement under the Sukuk’s terms. We expect PHB to also continue to operate independently and receive government assistance.

To ensure AHB's stability in performance, the federal government has in the past extended financial and non-financial assistance to PHB with annual grants ranging from RM50 mil to RM250 mil since 2011. These amounts are provided for in the government's annual budget as development expenditure. This has cushioned the downside adjustments to the fair value of the properties, finance new property acquisitions as well as supplementing development expenditures. This also helps maintain AHB’s net asset value at RM1 per unit. Such backing, alongside the Group’s close relationship with the government, anchors our belief that support will be extended whenever required.

PHB’s liabilities are expected to increase as it plans to fund future acquisitions and projects with a combination of new borrowings, the sale of its AHB units and internally generated funds. This is in line with its strategy to grow its portfolio value to RM25 bil and AHB’s assets under management to RM20 bil by 2030 (end-2023: RM11.1 bil and RM4.65 bil, respectively). PHB’s property lease liabilities and borrowings amounted to RM5.82 bil at end-December 2023 (end-December 2022: RM6.05 bil). Excluding fixed lease liabilities payable to AHB to facilitate the operations of the Fund, external borrowings totalled RM1.20 bil (end-December 2022: RM1.43 bil). This translates into gearing of 0.23 times as at the same date (end-December 2022: 0.28 times). 

PHB’s interest coverage ratio remained below 1 time, coming in at 0.61 times as at end-December 2023 (end-December 2022: 0.58 times). Excluding the financing cost under the lease payments to AHB, the interest coverage ratio stood at 2.57 times (end-December 2022: 2.52 times). Its cash to short-term debt ratio, however, improved to 1.21 times (end-December 2022: 0.61 times), thanks to stronger reserves and lower short-term borrowings. Notwithstanding generally weak liquidity ratios, any temporary shortfall in the Group’s liquidity position will be mitigated by readily available credit lines. In addition, the redemption of AHB units is partly financed by the subscription of AHB units from unitholders. PHB only needs to cover any net redemption, which would not require substantial liquidity.

On balance, the Group’s portfolio is highly concentrated in office assets, which contribute 50% of revenue and profits. This asset class registered an average occupancy rate of only 53% in FY Dec 2023, reflecting oversupplied market conditions. The Group is shifting its strategic asset allocation towards the industrial, healthcare and education sectors to reduce portfolio exposure to the office sector. To improve the occupancy of existing office buildings, PHB is undertaking asset enhancement programmes, obtaining green building status for at least 50% of its property portfolio and offering attractive tenancy packages. The Group also collaborates strategically with co-working space providers and their tenants to cater to escalating demand as small and medium enterprises grow.


Analytical contacts
Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my

Siew Suet Ming
(603) 3385 2585
suetming@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my