KUALA LUMPUR: RAM Ratings reaffirmed the AAA/Negative rating of Ara Bintang Bhd’s medium-term notes (MTN) under its RM1.25bil MTN programe.
The rating agency had on Friday reaffirmed the RM330mil second senior MTN and the
respective C3/Stable ratings of the RM730mil third junior MTN, RM10mil fourth junior MTN and RM10mil fifth junior MTN.
The transaction is a property securitisation involving Starhill Gallery and Lot 10 Shopping Mall, both assets within the portfolio of Starhill Global REIT – a retail and office real estate investment trust listed in Singapore.
“The affirmation of the negative outlook on the rating of the second senior MTN reflects our concerns over continued pressure on the properties’ performance owing to the longer than expected transition of the properties to their normalised state over the near to medium term following enhancement initiatives, as well as the challenging retail landscape,” it said.
RAM Rating said the properties’ net property income (NPI) of RM60.3mil for FY June 2018 was below RAM’s sustainable cashflow assumption of RM66mil per annum.
The portfolio’s overall performance may stay constrained as Starhill Gallery may start a reconfiguration exercise next year. The plan, if approved, will be carried out in stages.
“The exercise, once completed, will alter the issuer’s asset profile and likely trigger a review of our sustainable cashflow assumption and, accordingly, the properties’ assessed capital values.
“We have maintained our cashflow assumption for now pending further visibility on the properties’ normalised performance and the impact on their capital values,” it said.
As a result, the cumulative loan-to-value (LTV) ratios of 44.3% and 145.0% as well as stressed debt service coverage ratios (DSCRs) of 2.35 times and 0.72 times remain commensurate with the respective ratings of the RM330 million second senior MTN and RM750mil junior MTN.
RAM pointed out the master lease for the properties will expire in June 2019, a few months shy of the scheduled expected maturity of the second senior MTN.
While the lessee has indicated an intention to renew the Master Tenancy Agreement, the terms and timing of renewal are still being negotiated by the parties.
“We note that the plan is still in the negotiation stage; we will continue to monitor the progress of the proposed exercise.
“Principal redemption of the MTN upon its expected maturity is envisaged to be met through the issuance of new MTN under the programme, and/or via the exercise of a call option granted by Ara Bintang, or the disposal of the Properties in the open market.
“The MTNs are backed by the properties, which are strategically located in the Bukit Bintang area and identified on the main shopping belt, with good accessibility via public transportation.
The transaction’s structural features include mechanisms to initiate the sale of the properties upon the occurrence of trigger events, and the availability of six months’ coupon reserves in the designated accounts to address liquidity risk.
“The actual DSCR of the senior MTN stood at 5.48 times as at end-December 2017, remained compliant with the transaction’s minimum requirement of 1.50 times,” it said.
In FY June 2018, Ara Bintang received a RM84mil annual lease payment from the master lessee – Katagreen Development Sdn Bhd.
The lease payment is guaranteed by YTL Corporation Bhd , whose debt facility ratings were reaffirmed at AA1/Stable by RAM in January 2018.