MARC affirms rating of DutaLand

KUALA LUMPUR: Malaysian Rating Corporation Berhad (MARC) has affirmed
its rating on DutaLand Berhad's (DutaLand) outstanding RM20,649,024
Redeemable Unsecured Loan Stocks (RULS) at B with a stable outlook.

The
rating action incorporates DutaLand's improving operating performance,
underpinned by a higher contribution from its plantation division that
has offset weaker earnings from its property development activities, and
its reliance on asset disposals to generate liquidity to meet its
significant financial commitments.

DutaLand's major
property project, the 73-acre Kenny Heights Development, which is
located in the Sri Hartamas vicinity in Kuala Lumpur and jointly
undertaken with a related company, Olympia Industries Berhad, has seen
slower-than-expected progress due partly to liquidity constraints.

As
of date, only one project consisting of 49 units of 4-storey villas
with a gross development value of 216.0 million ringgit was completed
and handed over in April 2011.

The first phase of its
subsequent project, comprising two high-end condominium towers, has been
delayed from an initial launch date in 1Q2011. MARC understands that
the company has sold only 28 units of 168 units in the first tower
through a soft launch, translating to a take-up rate of about 17 percent
as of date. MARC observes that weakening market sentiment for the
high-end residential segment in the Klang Valley could pose near-term
challenges for DutaLand's property development division.

MARC
notes that DutaLand had planned to sell its sole plantation asset
consisting of 11,978 hectares of oil palm plantation in Sabah to an IOI
Corporation Bhd sub-subsidiary for RM830.0 million. However, the effort
to significantly boost its liquidity position had failed following a
mutual cancellation of the sales-and-purchase agreement in November
2011.

Meanwhile, DutaLand continues to depend heavily on
its plantation division to generate meaningful earnings. For financial
year ended June 30, 2011 (FY2011), the plantation division recorded a
sharp increase of 80 percent in revenue to RM56.0 million (FY2010: 31.1
million ringgit) and a threefold increase in operating profit to RM27.6
million (FY2010: RM9.0 million) due to improved prices for fresh fruit
bunches (FFB) and an increase in the production output of FFB to 88,139
metric tonnes (MT) (FY2010: 70,840 MT).

Nonetheless, MARC
notes the underperformance of its oil palm plantation relative to its
peers: DutaLand's average FFB yield of 10.59 tonnes/hectare was much
lower than the Sabah state average of 20.90 tonnes/hectare and the
national average of 18.65 tonnes/hectare.

Notwithstanding
the plantation division's performance, DutaLand registered lower revenue
of RM115.5 million in FY2011 (FY2010: RM21.2 million ) due mainly to
lower contribution from property development activities which fell to
RM59.4 million from RM88.2 million in the preceding fiscal year. The
group registered a pre-tax profit of RM3.5 million, which is an
improvement over FY2010's pre-tax loss of RM9.5 million (excluding a
one-off gain of RM26.1 million ).

Cash flow from operations
has also shown a significant improvement to RM101.4 million (FY2010:
RM10.1 million) mainly attributed to higher receivables collection. The
group's debt-to-equity ratio stood lower at 0.17 times as at FY2011
(FY2010: 0.26 times).

MARC notes that DutaLand repaid and
cancelled RM82.0 million of financial instruments, which includes RM5.6
million of RULS in FY2011. The next scheduled redemption for the RULS of
RM5.6 million is due in April 2012, with a final redemption of RM15.0
million in April 2013. With its consolidated liquidity position
remaining minimal at RM12.5 million (FY2011: RM11.6 million) in
relation to short-term obligations of RM69.8 million as of 1QFY2012,
MARC expects DutaLand to accelerate asset disposals to support the
group's ability to fully meet debt repayments. - REUTERS