RAM Ratings reaffirms ratings of debt facilities issued by Boustead’s financing conduit

Published on 21 August 2013

RAM Ratings has reaffirmed the following ratings of Mecuro Properties Sdn Bhd’s (“Mecuro”) RM900 million Nominal Value Bonds.

RM900 million Nominal Value Bonds	Rating/Outlook	Issue Amount
Senior Class A1 and A2	AAA/Stable	RM245 million
Senior Class B	AA2/Stable	RM12 million
Senior Class C	A1/Stable	RM15 million
Guaranteed Class D1	AA2(bg)/Stable	RM209 million
Guaranteed Class D2	AAA(fg)/Stable	RM209 million
Guaranteed Class E	AAA(fg)/Stable	RM210 million
TOTAL		RM900 million

Mecuro is a special-purpose vehicle incorporated as a funding conduit for a sale-and-leaseback transaction backed by 5 properties, i.e. Menara Boustead KL, The Curve shopping mall (“The Curve”), eCurve, Royale Bintang The Curve and Menara Affin (collectively known as “the Portfolio” or “the Properties”). The Senior Class A1, Senior Class A2, Senior Class B and Senior Class C Bonds are collectively referred to as “the Senior Bonds”.

The ratings of the Senior Bonds are underpinned by the credit support provided by the senior-subordination structure, as well as the debt service coverage ratios and loan-to-value ratios of the Bonds – ranging from 1.83 to 2.03 times and 45.37% to 50.37%, respectively – that are commensurate with the relevant ratings. Compared with transactions that are backed by a single asset/single-industry properties, the diversified Portfolio in this instance – comprising 2 retail malls (66% of the Portfolio’s market value), 2 office buildings (28%) and a hotel (6%) – offers some earnings protection, should any particular industry segment experience a sluggish period. The asset quality of The Properties, located in Mutiara Damansara and along Jalan Raja Chulan in Kuala Lumpur, are viewed as above average overall, with RAM Property Scores of between 3.85 and 4.25 (out of a maximum of 5.00). The ratings are also supported by various structural features of the transaction, including an irrevocable power of attorney to dispose of the Properties upon the occurrence of a trigger or default event, designated accounts to control cashflow, and a 12-month coupon reserve for the Senior Bonds in the debt service reserve account.  

On balance, however, the transaction is exposed to substantial asset concentration risk as the largest property – The Curve – constitutes about half of the Portfolio’s overall market value and expected net property income. Tenant concentration is also a factor as 70% of space at Menara Boustead is occupied by internal tenants and Menara Affin is entirely occupied by Affin Bank Berhad. Nonetheless, we view the downside risk as limited, given that the tenants are mostly companies within the larger Lembaga Tabung Angkatan Tentera group (Boustead Holdings’ ultimate parent), and that these buildings act as their corporate headquarters. Overall, the Portfolio’s performance was within our expectations during the review period. We expect its cashflow to ramp up and eventually converge towards our assumptions, thus supporting our adjusted valuation.

In the absence of a land charge, the bondholders’ security is evidenced by their beneficial interest in the Properties. To reinforce the security of the bondholders, the transaction includes additional measures/requirements such as legal caveats and the placement of original titles with the security trustee.

Meanwhile, the ratings of the Guaranteed Class D1, Guaranteed Class D2 and Guaranteed Class E Bonds reflect the irrevocable and unconditional guarantees extended by RHB Bank Berhad (rated AA2/Stable/P1 by RAM) and Danajamin Nasional Berhad (rated AAA/Stable/P1), respectively.

Media contact
Yong Keck Phin
(603) 7628 1183
keckphin@ram.com.my