Pension funds, insurers take up Digistar associate's bonds

by **Cals** Tue 24 Sep 2013, 08:53

Published: Tuesday September 24, 2013 MYT 12:00:00 AM
Updated: Tuesday September 24, 2013 MYT 8:14:04 AM
Pension funds, insurers take up Digistar associate's bonds
BY TEE LIN SAY
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An artist’s impression of the Malaysian National Technology Advancement Centre in Malacca. (inset) Datuk Lee Wah Chong

PETALING JAYA: The RM280mil bonds issued by a Digistar Corporation Bhd unit have been well received by the market, with the Employees Provident Fund alone taking up a third of the debt papers, people familiar with the transaction said.
The bond issuance is to raise funds to carry out a government project that Digistar’s 40%-owned unit, Indera Persada Sdn Bhd, has already secured, namely, the construction of the Malaysian National Technology Advancement Centre in Alor Gajah, Malacca, for the Works Ministry.
The other buyers of the bonds were the “usual suspects” of insurance companies and other institutional funds, the sources said.
The interest in the bonds can be explained by its good ratings. RAM Ratings Services Bhd has assigned a long-term rating of AA1 with a stable outlook on Indera Persada bonds.
Indera Persada has an 18-year concession from the Government for the Alor Gajah facility, covering a construction period of three years followed by an asset management services period of 15 years. It consists of RM174mil for the construction of facilities and infrastructure, and RM66mil for the provision of information and communications technology (ICT) and lab equipment.
RAM assigned the AA1 rating because the construction risk is largely mitigated by a performance guarantee of RM280mil by United Overseas Bank (M) Bhd for the construction period.
“The performance guarantee largely protects bondholders from the adverse effects of any construction delays.
“In addition, the main contractor for the project, Digistar Holdings Sdn Bhd, would bear any additional costs related to the project, as the design-and-build contract is on a fixed-price, lump-sum basis,” said RAM.
When contacted, Digistar group managing director Datuk Lee Wah Chong said: “This marks Digistar’s entry into property and construction in a significant way.
“While our ICT division has been doing well, for our company to become sizeable, property is our next phase of growth. As we go forward, property would be our main contributor.”
Last year, Digistar launched its maiden serviced apartments in Malacca. At a gross development value (GDV) of RM150mil, The Heritage Service Apartments has recorded a 60% take-up rate so far for its 347 units. Some 30% of the buyers are foreigners.
By Malacca standards, these units are expensive, as prices were transacted between RM930 and RM1,200 per sq ft. The apartments are located opposite the Equatorial Hotel and Dataran Pahlawan, which are considered prime locations in the Malacca city centre. The apartments will be completed by 2016.
“Who says you can only make money selling property in the Klang Valley and Johor? There are many foreigners, particularly Singaporeans, who are extremely keen on property in Malacca,” Lee said.
He said that Digistar was now looking for parcels of land for development in the Klang Valley.
“We would like to embark on a mixed development, comprising residential and commercial. If we can start our first project in the Klang Valley with a GDV of RM1bil, then we are on track to meet our targets,” Lee said.
For the nine months to June 30, 2013, Digistar’s net profit declined 28.4% to RM5.3mil on a 9.47% drop in revenue to RM48.06mil.
Digistar’s associate Indera Persada’s bonds taken up by pension and insurance funds
> EPF takes up one-third of the RM280mil bonds issued
> Alor Gajah, Malacca facility is an 18-year concession agreement covering 3 years of construction followed by 15 years of asset management services.
> Property to be Digistar’s future main business