ICRA Lanka assigns [SL]A-rating for Prime Lands and Prime Residencies

ICRA-lanka-rating

Mar 11, 2020 (LBO) – Rating action ICRA Lanka Limited, Subsidiary of ICRA Limited, Group Company of Moody’s Investors Service has assigned the Issuer rating of [SL]A- (pronounced SL A minus1) with Stable outlook for Prime Lands Residencies (Pvt) Limited (“PRIMER”/ “the Company”).

ICRA Lanka has taken a consolidated view of the Prime Group, in assigning the rating, given the operational and financial linkages among them.

The assignment of the rating takes into consideration the longstanding track record and established position of Prime Group as a leading real-estate developer in Sri Lanka.

Prime Group has significant experience in the real-estate sector in Sri Lanka over the past 25 years. The Group’s lands and housing segment being the core business of the Prime Group, has performed well over the past several years amidst the increasing demand from the middle income categories. ICRA Lanka also takes comfort from the positive industry outlook of the real-estate sector in Sri Lanka amidst the recent progressive steps implemented by the Govt in the early CY2020.

The rating also takes into consideration the professional management team of the Company, the healthy relationships with various stakeholders in this industry, the brand equity in the industry and the timely delivery of the projects compared with the industry competitors.

These apart, ICRA Lanka takes comfort from PRIME’s healthy cash collection efficiency amidst the strong presales levels of the Group’s project portfolio that is geographically diversified across the island. Prime Group’s forecasted future cash flow levels, which are characterized by healthy operating profit margins and strong customer advances, provide further comfort to the assigned rating. The Group’s total debt levels currently remain at a moderate level compared to the scale of the ongoing project portfolio as of 31st Dec 2019.

During FY2017, the Company had started an ambitious luxury apartment project (Prime Grand) in Colombo-07. ICRA Lanka will continue to monitor the ability of the management to successfully complete this project within the time and cost targets as envisaged.

During early CY2020, HNB Finance Ltd, an associate company of the Prime Group has successfully gone through an Initial Public Offering (IPO) which resulted in the Company’s market value in HNB Finance Ltd increasing to ~LKR 3.3 Bn, (against the total investment cost of~ LKR 290 Mn). This will provide the Prime Group additional liquidity (financial flexibility) to support its operations going forward. The rating also factors in the susceptibility of the Company’s financial performance to Sri Lanka’s macroeconomic conditions (such as volatile interest rate, depreciation of Sri Lankan rupee and etc) and the Government’s policies on the real-estate industry.

The rating also takes into consideration Prime Group’s likely capital support for its finance subsidiary, Prime Finance PLC, in order to meet its regulatory capital requirements over the medium term.

Outlook: Stable

The Stable outlook reflects ICRA Lanka’s expectations that PRIME would benefit from the recovery of the real-estate sector going forward and the Company’s Prime Grand project being completed within the time and cost targets as envisaged.

Credit strengths Leading real-estate group in Sri Lanka: Prime Group is a leading real-estate company in Sri Lanka, operating in residential segment of the real-estate industry in the country.

PRIME is a market leader in the affordable luxury apartment segment in Sri Lanka and operates in 18 districts of the island. The Group has been recognized as a leading real–estate developer in Sri Lanka by local and international organizations.

Currently, the Group has ~75,000 Active customer base. Over the past two decades, Prime Lands (Pvt) Ltd has undertaken many property development projects, totalling to ~LKR 52 Bn. Further, the Company currently has a large land bank, amounting to ~LKR 7-8 Bn as unsold stock (at market value) and LKR 4.4 Bn as land project developments in progress (at cost).

Prime Lands Residencies (Pvt) Ltd, a fully owned subsidiary of the Prime Lands (Pvt) Ltd, has carried out 42 apartment projects in Sri Lanka over the past several years and of which, nearly 36 apartment projects have been completed successfully with high capital appreciation in the market values.

Although, in the past, the apartment market in Sri Lanka was largely confined to the Colombo City, the Company has been instrumental in expanding this concept into the suburban towns of Sri Lanka. Experience of the promoter and the management:

The Company and the Group as a whole have been driven by the rich promoter experience and the strong and experienced management team in place, which have guided the Company through several business cycles.

Over the past two decades, the Company has grown organically, specializing in the real-estate sector in Sri Lanka. The management is also strategically focused on potential markets in the real-estate sector in Sri Lanka and is conservative in the scale of the business and the increased debt exposures. Healthy presales and increased cash collection efficiency: Given the strong brand equity of the Prime Group, the presale levels of the Company remain at a heathy level.

This has also helped the Company to increase its cash collection efficiency; Prime Lands (Pvt) Ltd and Prime Lands Residencies (Pvt) Ltd have recorded a cumulative cash collection efficiencies of ~80% and~65% respectively as of end Dec 2019.