LBS to raise RM750m via sukuk, sets up its own sustainability financing framework

• The programme provides the group the flexibility to issue both Sukuk Wakalah and Sustainability Sukuk Wakalah that complies with green/social/sustainability/sustainable and responsible investment sukuk guidelines, frameworks, standards or principles issued by the SC, the Asean Capital Markets Forum, or the International Capital Market Association.

KUALA LUMPUR (Nov 14): Property developer LBS Bina Group Bhd is planning to raise up to RM750 million via sukuk for capital expenditure, investments, working capital and refinancing.

The Islamic debt papers are to be issued under a Sukuk Wakalah Programme it has just lodged with the Securities Commission Malaysia on Tuesday.

"The Sukuk Wakalah Programme entails the issuance of Sukuk Wakalah of up to RM750 million in nominal value. Whilst the Sukuk Wakalah Programme has been structured with a perpetual tenure, each Sukuk Wakalah to be issued will have a tenure of more than one year," it said in a bourse filing.

It said the programme provides the group the flexibility to issue both Sukuk Wakalah and Sustainability Sukuk Wakalah that complies with green/social/sustainability/sustainable and responsible investment sukuk guidelines, frameworks, standards or principles issued by the SC, the Asean Capital Markets Forum, or the International Capital Market Association.

Proceeds raised from the issuance of Sustainability Sukuk Wakalah shall be used for eligible projects as outlined in the group's newly established Sustainability Financing Framework.

The eligible projects include green projects that relate to green building, renewable energy/energy efficiency, pollution prevention and control, biodiversity conservation, and/or social projects that relate to affordable housing, and socioeconomic advancement and empowerment.

The sukuk programme, meanwhile, has been assigned a preliminary credit rating of AA-IS with a stable outlook by MARC Ratings Bhd, "mainly premised on LBS Bina’s strong sales track record in the affordable and mid-market residential property segment, its sizeable unbilled sales and healthy cash flow metrics", MARC said in a separate statement.

Its unbilled sales stood at RM2.5 billion as at end-July 2023, which are more than sufficient to fund the construction of ongoing developments, MARC said.

LBS Bina is also expected to launch, over the next two to three years, new phases of its existing Klang Valley developments.

"These developments consist of about 13,000 units with a combined GDV of RM7.1 billion. Long-term development opportunities would be supported by its sizeable landbank of more than 2,900 acres which are largely located in Kuala Langat and Cyberjaya in the Klang Valley, and Batu Pahat and Kota Tinggi in Johor," MARC noted.

It also noted that the group's revenue has remained healthy, in line with the strong take-up of its projects, while inventory levels have declined to RM101.6 million as at end-1H2023 from RM232.2 million as at end-2021. LBS Bina’s operating profit margins have also remained steady at 16%-19% over the past five years, it added.

Moderating the rating is the potential increase in borrowings for property development that would weigh on its leverage metrics. Exposure to the cyclical property market is also a rating concern, it noted.

"The group plans to draw down up to RM200 million under the rated sukuk in 2023 mainly for refinancing, as well as RM411.6 million in bank financing for its projects between 2023 and 2025. Borrowings are expected to rise to around RM1.25 billion in 2025, which could lead to an increase in leverage," it added.

HSBC Amanah Malaysia Bhd and RHB Investment Bank Bhd are the joint principal advisers, joint lead arrangers and joint lead managers of the Sukuk Wakalah Programme. In addition, HSBC Amanah Malaysia is the sole sustainability structuring agent and sole shariah adviser of the sukuk programme.

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