TEXT-Malaysia's RAM cuts LBS Bina ratings

(The following statement was released by the rating agency)

KUALA LUMPUR, April 16 - RAM Ratings has lifted the Rating Watch (with a negative outlook) on LBS Bina Group Berhad's ("LBS" or "the Group") RM65 million Secured Serial Bonds (2006/2011) ("Bonds") and RM100 million Commercial Papers Programme (2006/2013) ("CPs"). Pursuant to that, RAM Ratings has downgraded the long-term rating of the Bonds from A2(s) to BBB2(s), with a negative outlook. At the same time, the short-term rating of the CPs has also been downgraded, from P1(s) to P3.

The negative outlook on the long-term rating is based on the anticipation of a more challenging business environment for LBS, moving forward. As a property developer in the low-to-medium-end market, the expected cost escalation for building materials and inflationary pressures arising from lofty oil prices will heighten the Group's operations and demand risks. While RAM Ratings notes the Group's intention to venture into the medium-to-high-end property segment, the success of this strategy remains to be seen. Moreover, the less-than-strategic locations of most of its developments also pose an added challenge to LBS. On the other hand, the rating downgrade is premised upon LBS's deteriorating business profile, arising from its continuously poor performance and the persistent deferment of its planned launches over the past year. LBS has instead, been supplementing its property sales with land sales in the last few quarters, a move that is not deemed to be sustainable and further reflects the Group's weakened fundamentals. LBS's financial performance in the past few years has echoed its business profile. Despite the disposal of more than 400-acres of land worth RM52 million over the past year, revenue for FYE 31 December 2007 ("FY Dec 2007") fell 12% to RM288.39 million (FY Dec 2006: RM328.71 million). The weaker revenue, coupled with heftier operating expenses and overheads, cut its operating profit before depreciation, interest and tax ("OPBDIT") from RM22.59 million to only RM9.28 million over the same period. As a result, the Group's OPBDIT-to-debt coverage deteriorated from 0.08 times (as at end-December 2006) to 0.03 times as at end-FY Dec 2007. As at end-June 2007, RM50 million of LBS's Serial Bonds remained outstanding. RAM Ratings notes that LBS had made the first redemption of RM15 million on 16 January 2007. The second redemption of the Bonds, valued at RM10 million (scheduled for 16 January 2009), has also been well covered via the disposal of some designated assets. To date, RM8.46 million has been credited into the Cash Collateral Account for this redemption.