RAM Ratings reaffirms ratings of Quill Capita’s RM134 million CP/MTN, issued by subsidiary Boromir Capital

Published on 11 January 2013

RAM Ratings has reaffirmed the respective ratings of Boromir Capital Sdn Bhd’s (“Boromir”) Class A, Class B, Class C and Class D Commercial Papers/Medium-Term Notes Programme (“CP/MTN Programme”), at AAA, AA2, A1 and A2. All the long-term ratings have a stable outlook. Concurrently, the short-term rating of each class under the CP/MTN Programme has been reaffirmed at P1. The ratings reflect the credit support provided by the loan-to-value ratios (ranging from 45.86% to 56.38%) and debt service coverage ratios (ranging from 1.65 times to 2.03 times) that commensurate with the rating of each class under the CP/MTN Programme, as well as the securitised portfolio’s stable performance.

Boromir, a special-purpose vehicle, had been set up by the sponsor of this transaction – Quill Capita Trust (“QCT”) – to carry out the commercial real estate-backed transaction involving a portfolio of 4 office buildings (Quill 5, Quill 10, Plaza Mont’ Kiara and Wisma Technip) and 1 industrial property (Quill 8) – collectively, “the Properties” – with a combined market value of RM362.50 million as at 31 December 2011. The Properties are situated in prime and near-prime locations throughout the Klang Valley and are viewed to be of above-average quality. However, tenant concentration is significant as Wisma Technip, Quill 8, Quill 5 and Plaza Mont Kiara are all occupied by single tenants. QCT is a real-estate investment trust that is involved in the acquisition of and investment in commercial properties in Malaysia.

For the period under review, the overall performance of the portfolio remained stable, registering a combined net property income (“NPI”) of RM12.12 million for the first half of FYE 31 December 2012 (“1H FY Dec 2012”). For the full year, we expect the Properties to chalk up an annualised NPI of RM23.51 million, i.e. within RAM Ratings’ expected sustainable cashflow of RM22.14 million per annum. Despite the loss of cashflow following the end of the lease period for Quill 10 (which accounted for 9.05% of the portfolio’s NPI for FY Dec 2011), the negative impact had been compensated by the strong cashflow generated by the other properties (primarily Wisma Technip).

Nonetheless, we note that it may be some time before Quill 10 achieves full occupancy amidst competition from existing and newly completed offices within the vicinity. While the ongoing urban redevelopment bodes well for Petaling Jaya’s Section 13, particularly for properties situated along major roads, Quill 10 may not benefit as much given its less prominent location. We do not expect to see any significant impact on the performance of Quill 10 in the near term; at the same time, we also do not discount the possibility of future redevelopment for this building. RAM Ratings will closely monitor the property for the relevant updates. As it stands, there is no major impact on the overall portfolio’s performance as its cashflow is within expectations and sufficient to support its valuation.

RAM Ratings highlights that tenant-retention are critical to this portfolio of single-tenanted properties, particularly for Wisma Technip (which accounts for approximately 45% of the Properties’ NPI) as its lease expires in December 2013. Although non-renewal risk is a concern, as exemplified by Quill 10, this risk is considered low for Wisma Technip and the rest of the Properties due to their competitive rental rates relative to their peers in the vicinity. We expect the portfolio to chart a stable performance as the CP/MTN Programme approaches its expected maturity on 15 September 2013. We understand that QCT is currently making arrangements to refinance this debt facility.

Media contact

Lee Sook Wei

(603) 7628 1017

sookwei@ram.com.my