MARC AFFIRMS ITS MARC-1(fg)/AAA(fg) RATINGS ON MRCB SENTRAL PROPERTIES SDN BHD’S RM400 MILLION DEBT PROGRAMME

Aug 16, 2013 -

MARC has affirmed its ratings on MRCB Sentral Properties Sdn Bhd’s (MRCB Sentral) outstanding RM400 million Commercial Papers/Medium Term Notes (CP/MTN) Programme at MARC-1(fg)/AAA(fg) with a stable outlook. The affirmed ratings and outlook are underpinned by an unconditional and irrevocable financial guarantee provided by Danajamin Nasional Berhad (Danajamin) for the CP/MTN Programme. MARC currently has a financial strength rating of AAA/stable on Danajamin on the basis of Danajamin’s status as a government-sponsored financial guarantee insurer, its solid capital base and perceived high support from the government in view of its public policy objective of facilitating greater corporate access to the domestic sukuk and bond markets.

MRCB Sentral, a wholly-owned subsidiary of Malaysian Resources Corporation Berhad (MRCB), is involved mainly in property investment and development. The company completed its major development, the RM700 million Platinum Sentral in KL Sentral in May 2012.  Comprising five blocks of low-rise office towers with net lettable area (NLA) of 449,973 sq ft and retail lots with NLA of 78,813 sq ft, Platinum Sentral has been able to fully lease its office towers but continued to face challenges to improve the low 20% occupancy level of its retail space due mainly to the strong competition within the KL Sentral vicinity. MARC notes that as the retail space comprises only 15% of Platinum Sentral’s total NLA, the current weak occupancy levels will not be a substantial factor in the overall rental generation of the development. Platinum Sentral commands average rental rates of RM8.70 psf for the office space and RM6.00 psf for the retail space which are considered to be competitive against similar buildings in KL.

MARC notes that as a significant proportion of about 90% of its office space is occupied by only three tenants, the office component is exposed to concentration risk. Nonetheless, this risk is mitigated by the fact that the majority of its office tenants are government-linked companies while MRCB Sentral’s status as a government-linked entity is expected to be supportive of current occupancy levels. MARC views that the tenancy profile and the locked-in lease tenancy period of a minimum three years and up to 15 years with upward rental adjustment every three years mitigate credit and termination risks, and at the same time should provide stable rental generation to support MRCB Sentral’s debt servicing ability.  

   

MRCB Sentral’s two other investment properties, namely Menara MRCB, an office building and Plaza Alam Sentral, a shopping mall, are located in Shah Alam. Despite the above average occupancy levels, they account for a smaller proportion of the company’s rental revenues. MARC understands that the company’s near-term development plans include an office tower project in Shah Alam with gross development value (GDV) of RM121.0 million.

For the financial year ended December 2012 (FY2012), MRCB Sentral’s revenue rose sharply to RM316.5 million (FY2011: RM38.0 million) mainly due to a sale of an office tower in KL Sentral. Excluding the one-off proceeds from the sale, the company’s revenue would be RM77.7 million, consisting mainly of rental income of RM65.2 million in FY2012 (FY2011: RM34.5 million). The year-on-year increase in rental income is mainly attributable to attaining full occupancy of office space in Platinum Sentral during the year. MARC observes the company has continued to receive financial support from its parent to meet its operational requirements.

MRCB Sentral has RM80 million notes under the programme due on September 27, 2013 which upon maturity are expected to be reissued with longer tenure to coincide with the maturity of its earlier tranche of RM320 million due in September 2017. MARC notes that due to the sizeable bullet payment at the end of the tenure, the programme would be exposed to refinancing risk; however, this is expected to be largely mitigated by the high quality of the Platinum Sentral development.

The ratings and outlook hinge on the guarantee provided by Danajamin, therefore any changes to MRCB Sentral’s rating would be largely driven by an underlying change in Danajamin’s credit strength.

Contacts:

Jasmine Kua, +603-2082 2280/ jasmine@marc.com.my;

Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my.