[MARC] MARC Ratings affirms ratings of MARC-1IS/AA-IS on UDA’s ICP/IMTN Programmes of up to RM1.0 billion

MARC Ratings has affirmed its ratings of MARC-1IS/AA-IS on UDA Holdings Berhad’s (UDA) Islamic Commercial Papers (ICP) Programme of up to RM100.0 million and Islamic Medium-Term Notes (IMTN) Programme of up to RM1.0 billion with a combined aggregate limit of up to RM1.0 billion. The long-term rating outlook is stable.

The ratings incorporate MARC Ratings’ assessment of the government support extended to UDA in the form of grants and equity contributions through loan conversion over the years. Through the Ministry of Finance (MoF), the government owns 100% of UDA which comes under the purview of the Ministry of Entrepreneur and Cooperatives Development. The rating agency notes that UDA’s property development activities are mainly aligned with the government’s socioeconomic objectives. In accordance with MARC Ratings’ notching principles on government-related entities, the ratings incorporate a two-notch uplift from UDA’s standalone rating.

Meanwhile, UDA’s standalone credit profile has weakened due to lower-than-expected take-up rates for its recent projects including a key high-rise condominium project, Residensi 38 Bangsar, that would increase its inventory levels over the near term. The group has also increased its borrowings to about RM1.0 billion as at end-1H2024 from RM703.8 million as at end-2023 to fund project developments. Accordingly, its standalone rating has been lowered to A from A+.

UDA’s property development and property-related activities are geared towards facilitating residential and business ownerships among the low-to-middle-income population. In 1H2024, UDA’s ongoing gross development value (GDV) rose to RM1.2 billion following the launches of two landed residential projects in Johor, and one each in Terengganu and Pahang with a total GDV of RM275.8 million. Unbilled sales of RM268.6 million as at end-June 2024 provide some earnings visibility in the near term.

The average take-up rate for its ongoing projects stood at a moderate 65.1% (excluding the recent launches), suppressed by a 19.0% take-up rate for Residensi 38 Bangsar which will be completed by 1H2025. As a result, inventory level — RM185.6 million as at end-June 2024 — could increase by around RM207 million. As at end-September 2024, the take-up rate for Residensi 38 Bangsar was 38.0%. If the take-up rate improves to around 50% by end-2024 as anticipated by UDA, the potential increase in inventory could be minimised to around RM120 million. MARC Ratings notes that about 66% of UDA’s existing outstanding inventory comprises unsold office units in Legasi Kampong Bharu; UDA is currently in negotiations for an en bloc sale which will be confirmed by end-2024.

The average occupancy rate of UDA’s investment properties, consisting of office buildings and shopping complexes, stood at 81.1% as at end-June 2024 (end-June 2023: 85.2%). However, its hospitality properties — namely the AnCasa hotels and the Kuala Terengganu Golf Resort — continue to have a low average occupancy rate of 43.6% (June 2023: 41.4%). Recently, UDA expanded its investment properties and hospitality portfolio with the acquisition of Perda City Mall in Penang for RM160 million and a hotel building in Bukit Bintang City Centre (BBCC) in KL for RM295 million. It also plans to redevelop the 2.9-acre Odeon site in KL into a mixed development. The group will rely on internally generated funds and bank borrowings to fund the development of these projects.

For 1H2024, revenue rose by 12.2% y-o-y to RM203.2 million. The higher contribution from the investment properties and facility management services offset the weaker performance in property development. However, the group recorded pre-tax loss of RM9.9 million on higher raw material and financing costs. Cash flow from operations was negative RM108.7 million with operations being funded mainly by borrowings. As a consequence, debt-to-equity (DE) ratio rose to 0.33x from 0.23x as at end-2023. The conversion of a legacy treasury loan of RM165.3 million into equity in September 2023, which led to an increase in shareholders’ funds to about RM3.1 billion from RM2.9 billion, mitigated the increase in leverage. Over the near term, DE ratio would increase to around 0.41x, from the increase in borrowings by RM221.3 million to partially fund the acquisition of the hotel building in BBCC.

UDA has strong financial flexibility, stemming from its sizeable unencumbered landbank with an estimated market value of about RM2.8 billion. The group also has unrestricted cash balances of RM468.7 million (excluding the Housing Development Act account balance) and RM241.6 million in unutilised credit lines as at end-June 2024.

Fatin Sadiqah Saberam, +603-2717 2934/ fatin@marc.com.my
Farhan Darham, +603-2717 2945/ farhan@marc.com.my
Yazmin Abdul Aziz, +603-2717 2948/ yazmin@marc.com.my