KUALA LUMPUR (April 16): Tropicana Corp Bhd has proposed a RM1.5 billion Islamic Medium-Term Notes programme (Sukuk Wakalah) to repay borrowings to unencumber secured properties.

In a filing with Bursa Malaysia , the group said the proceeds will also be used for capital expenditure, investments and working capital.

Tropicana said it lodged the programme with the Securities Commission Malaysia today.

Meanwhile, Malaysian Rating Corp Bhd (MARC) has assigned a preliminary rating of ‘A+’ with a stable outlook to the Sukuk Wakalah.

In a statement, MARC said the assigned rating reflected Tropicana’s established market position in property development, steady performance and moderate leverage position. These strengths are supported by stable, albeit modest, recurring income from investment properties.

But the agency said the rating is mainly moderated by its heavy reliance on property and property-related activities given the prevailing weakness in the domestic property market that will be exacerbated by the economic impact from the COVID-19 pandemic.

Meanwhile, the stable outlook incorporates MARC’s expectation that the group will be able to withstand the near-term impact from the outbreak based on the group’s strong liquidity position vis-à-vis its financial obligations.

“Tropicana has a long and established track record in property development, strengthened by the strong response to the Tropicana Golf & Country Resort, a resort-style development with a 27-hole golf course on 625 acres in Petaling Jaya. Its other key developments that are based on a similar resort-style concept have been well received,” it said.

As at end-December 2019, the combined gross development value of Tropicana’s ongoing developments was RM3.8 billion. It has a total unbilled sales of RM836.5 million, which provides earnings visibility over the medium term.

“The group has, however, faced slower take-up rates for some property sub-segments such as shop offices and link houses within some of its developments.

“Tropicana’s property investments include three private school buildings in the Klang Valley from which it generates a stable but modest rental income. Its entry into the hospitality segment, with the recent completion of W Hotel in Kuala Lumpur, has also seen moderately improving revenue,” MARC stated.

The agency noted that Tropicana has substantial landbank of about 2,167.5 acres as at end-December 2019, following the acquisitions of 1,121.6 acres of land from related parties for RM1.96 billion that were funded by the issuance of irredeemable convertible preference shares, and novation of borrowings from the related parties.

Cashflow from Tropicana’s operations, however, remained healthy at RM176.2 million for 2019.

MARC said that while the land acquisitions saw an increase in borrowings through debt novation to RM2.8 billion, Tropicana’s debt-to-equity (DE) ratio remained at 0.51.

The DE ratio is projected to rise to 0.6 from an increase in borrowings to fund its property development cost, which is expected to be about RM960 million over the near-to medium-term.