Prime Lands Residencies PLC

ICRA Lanka upgrades the issuer rating of Prime Lands Residencies PLC

InstrumentCurrent Rated Amount (LKR Mn)Rating Action
Issuer Rating N/AUpgraded to [SL] A (Stable) from [SL]A- (Stable)

Rating action                                               

ICRA Lanka Limited, Subsidiary of ICRA Limited, Group Company of Moody’s Investors Service has upgraded the Issuer rating of Prime Lands Residencies PLC (“PRIMER”/ “the Company”) to [SL] A (pronounced SL A[1]) from [SL] A-; the Outlook remains Stable.

Rationale

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

The rating action 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 26 years. ICRA Lanka takes comfort from the Group’s geographically diversified project portfolio and strong brand equity, in the real estate sector, resulting in healthy presales on new projects.

The Group’s healthy operating profit margins and improvement in the earnings profile during FY21, which has been sustained into 9MFY22, provide further comfort to the assigned rating. Healthy apartment pre-sales and higher sales velocity on land projects have primarily contributed to this performance improvement. Group’s coverage indicators have improved during 9MFY22 (interest cover of 5.90 times as in Dec-21, vis-à-vis 3.85 times in Mar-21 and 1.66 times in Mar-20), despite some increase in absolute debt levels. ICRA Lanka also notes the improved liquidity position of the group with the recent divestment of its 94% owned subsidiary, Prime Finance PLC for LKR 2.1Bn.

The rating further draws comfort from around 90% completion and healthy pre-sales levels of the flagship luxury apartment project of Prime Lands Residencies, The Grand – Ward Place, which commenced in FY2017. ICRA Lanka will continue to monitor the ability of the management to successfully complete this project within the time and cost targets as envisaged.

The ability of the group to manage the macro pressures such as the rising construction cost and interest rates will be a key monitorable, going forward.  Increasing demand for real-estate as an inflation hedged asset and the group’s shift in focus more towards lands sales, as opposed to apartments will provide some comfort.

Outlook: Stable

The Stable outlook reflects ICRA Lanka’s expectations that the Group would sustain the performance with healthy sales levels while completing its key projects within the envisaged timelines.

Credit strengths

The Leading residential real-estate group in Sri Lanka: Prime Group is a leading residential real estate company in Sri Lanka, operating in the residential segment of the real estate industry in the country. The Group is a market leader in the Lifestyle apartment segment in Sri Lanka and operates in 18 districts of the island with a customer base of over 75,000. Over the past 26 years, Prime Lands (Pvt) Ltd has undertaken many property-development projects, totaling to over 9. Further, the Company currently has probably the largest land bank, amounting to ~LKR 13 Bn (at market value) as in January 2022. Prime Lands Residencies PLC, a fully owned subsidiary of Prime Lands (Pvt) Ltd, has carried out close to 50 apartment projects in Sri Lanka over the past several years. 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.

Improved capitalization and coverage indicators due to 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, while the collections on presales have also improved during the period. Most projects under Prime Lands (Pvt) Ltd have recorded relatively high presales levels of 55%-75% during the first year of the project-launch. The lands & housing segment is generally regarded to have a higher demand (velocity) compared with the apartment segment. ICRA Lanka notes that good pre-sales values and collection efficiency has resulted in the group being able to under-take its projects with moderate debt levels, especially in the land segment. The Group interest cover improved to 5.90x in 9MFY22 from 3.85x in FY21 and 1.66x in FY20 while the gearing ratio also improved to 0.53 in 9MFY22 from 0.61 in FY21 and 0.82 in FY20.

Healthy liquidity position: Group’s liquidity position has increased with the proceeds of LKR 2.1Bn from the divestment of its subsidiary NBFI, Prime Finance PLC in Dec-21. As in Jan-22 the group had liquid investments of about LKR 8.7Bn, in addition to its unutilized funding lines of about LKR 2.4Bn. ICRA Lanka notes that the group’s liquidity buffers remain adequate compared to the debt servicing requirements over the next 12M.

Credit Challenges

Increasing raw material prices and material shortages: Currently, the construction sector is experiencing a shortage of input due to the weak reserve position of the country. Supply shortage coupled with the sharp devaluation of the local currency has led to prices increases for some of the key construction materials such as cement and steel. ICRA Lanka expects the construction sector to be affected by these dynamics over the short to medium term. However, ICRA Lanka notes that the Prime Group’s new strategy to focus on land sales, as opposed to apartments, and the group’s pricing flexibility provide some comfort over the short term.

Vulnerable to policy uncertainty: ICRA Lanka notes that, the real-estate sector in Sri Lanka is vulnerable to the policy changes, that could affect both demand and supply dynamics of the sector. During CY2018/19, the real estate sector (including the construction and engineering sector) in Sri Lanka has been negatively affected due to weaker macro-economic conditions and Govt’s overall policy inconsistency on this industry.  Current import restrictions are creating supply pressures for the sector, while the recent contractionary monitory measures (resulting in higher interest rates) could affect the demand for real estate.

Analytical approach: For arriving at the ratings, ICRA has applied its rating methodologies as indicated below.

Links to applicable criteria: www.icralanka.com/images/pdf/Corporate%20Rating%20Methology.pdf

About the Company:

Prime Lands (Pvt) Ltd. was established26 years ago by the founding members-Mr. Brahmanage Premalal and Mrs. Sandamini Perera. Prime Group has now become one of the leaders in real-estate sector in Sri Lanka (Land development for residential purpose, individual houses and apartments). In 2016 Prime Lands Residencies (Pvt) Ltd. was established as wholly own subsidiary of Prime Lands (Pvt) Ltd. by amalgamating Prime Homes (Pvt) Ltd. (incorporated in 2013), Living Homes (Pvt) Ltd. (Incorporated in 2014) with Prime Homes International (Pvt) Ltd. (Incorporated in 2005) as single entity, focusing on Lifestyle apartments and ultra-luxury apartments in Colombo and several other cities across the country. On 11th May 2021, Prime Lands Residencies (Pvt) Ltd. went through its Initial Public Offering to become a listed entity in the Colombo Stock Exchange (CSE), effectively reducing Prime Lands (Pvt) Ltd.’s ownership to 80%.

During 2011, the Company acquired Ceylinco Grameen, a micro finance company, part of the Ceylinco Group, which had suffered due to the crash of the Ceylinco Group. This company renamed as Prime Grameen, was revived as a profitable venture under the management of Prime Group. However, during 2014, under the financial sector consolidation plan initiated by CBSL, the Group divested controlling interest of 51% stake to Hatton National Bank PLC.  Prime Grameen, which has been subsequently renamed twice as HNB Grameen Finance Ltd. HNB Finance Ltd. has become an associate company of the Prime group since 2014. In February 2020, HNB Finance underwent its Initial Public Offering to be listed on the Colombo Stock Exchange. During 2017, Prime Lands (Pvt) Ltd. acquired a 75% stake of Summit Finance PLC and latter this was renamed as Prime Finance PLC. This has become the first listed entity of the Prime Group in 2017. Prime Finance, which was incorporated in 2004 and listed in CSE in 2012, is a licensed Finance Company. In December 2021, as a part of the financial sector consolidation program by CBSL, HNB Finance PLC acquired the controlling stake of 87% of Prime Finance PLC, from its parent entity Prime Lands (Pvt) Ltd.

Key Financial Indicators-Prime Lands (Pvt) Ltd
Figs are in LKR MnFY16FY17FY18FY19FY20FY21
Operating Income3,2493,7664,6064,3384,6225,713
OPBDITA414641749693761647
PAT2121,016 875 500 448 572
Total Debt2,3493,8802,9772,5611,1332,032
Networth1,5292,7823,2443,6666,4478,690
Gearing (times)1.541.390.920.700.180.23
OPBDITA/Interest & Finance Charges2.651.792.091.962.533.83
Total Debt/OPBDITA (times)5.686.053.973.691.493.14
Key Financial Indicators-Prime Lands Residencies PLC
Figs are in LKR MnFY17FY18FY19FY20FY219MFY22
Operating Income6,3085,5903,5955,7167,7326,345
OPBDITA 1,651 1,191 631 804 1,5901,454
PAT1,0527152731319891,158
Total Debt4,3823,5285,7476,1195,3444,678
Networth2,4042,6942,7272,4433,4336,166
Gearing (times)1.821.312.112.511.560.76
OPBDITA/Interest & Finance Charges2.762.301.011.263.855.12
Total Debt/OPBDITA (times)2.652.969.127.613.362.41

Note: PAT and networth are adjusted for the revaluation gains in FY2019

Rating history for last three years:

Prime Lands (Pvt) Ltd. and Prime Lands Residencies PLC

[1]ForcompleteratingscaleanddefinitionspleaserefertoICRALanka’sWebsitewww.icralanka.comorotherICRARating Publications


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