RAM Ratings reaffirms AAA rating of Mid Valley Capital's Class 1 Bonds, with stable outlook

Published on 28 December 2011
RAM Ratings has reaffirmed the AAA rating of Mid Valley Capital Sdn Bhd’s (“MVCap”) Class 1 Series C to F Redeemable Secured Bonds (“the Bonds”), with a stable outlook. MVCap - a wholly owned subsidiary of KrisAssets Holdings Berhad (“KrisAssets”) - had been set up as the funding vehicle for the Al-Bai Bithaman Ajil (“ABBA”) financing transaction between MVCap and Mid Valley City Sdn Bhd (“MVC”). The Bonds’ primary source of repayment stems from the cashflow generated by Mid Valley Megamall (“Megamall” or “the Mall”), which is owned and operated by MVC.

On 9 September 2011, MVCap had obtained the bondholders’ approval to extend the expected maturity date and legal maturity dates of the Bonds for an additional 5 years from its 7th anniversary, i.e. 15 September 2011. RAM Ratings highlights that the extension has no impact on the rating of the Bonds as we do not perceive this as a distressed scenario.

The rating reaffirmation is premised on Megamall’s healthier pre-tax operating cashflow of RM174.71 million in FY Dec 2010 (+10.7%), compared to our sustainable-cashflow assumption of RM116 million. The better-than-expected showing is mainly attributable to Megamall’s stronger average rental rate (“ARR”), almost-full average occupancy rate (“AOR”) and healthier operating margins. Moving forward, we envisage the Mall’s ARR to continue trending upwards, premised on its locked-in tenancies and strong appeal to retailers.

During the reviewed period, Megamall’s RAM Property Score had been revised from R-4.40 to R-4.75, which corresponds to a capitalisation rate of 8.50%. The revision had been premised on Megamall’s consistently strong tenancy mix, as reflected in its strong ARRs and AORs. The resultant higher adjusted valuation of RM1.37 billion for the Mall and the further deleveraging of the transaction had led to a higher loan-to-value ratio of 14.66% and stronger debt service coverage ratio of 5.80 times, which remain commensurate with the AAA rating of the Bonds.

Meanwhile, we note that MVCap has proposed to amend the transaction’s security arrangement, to allow Megamall to be shared on a pari passu basis with the investors of KrisAssets’ RM300 million Redeemable Convertible Bonds, subject to the bondholders’ approval. RAM Ratings notes that such amendments would require, among others, an alignment of the security interest between the bondholders of MVCap and KrisAssets. On this note, we will closely monitor the transaction for new developments. Any rating impact on the Bonds will be subject to RAM Ratings’ full review and assessment of the proposed amendments to the legal documents.

Media contact
Lim Chern Yit
(603) 7628 1035
chernyit@ram.com.my