MARC AFFIRMS ITS RATINGS ON ALL TRANCHES OF INVERFIN SDN BHD’S RM200 MILLION MTN PROGRAMME

Feb 21, 2014 -

MARC has affirmed the ratings of Inverfin Sdn Bhd’s (Inverfin) RM200 million Medium Term Notes (MTN) Programme comprising RM185 million of Tranche A and RM15 million of Tranche B notes at AAA and AA respectively. The lower rating on the Tranche B notes reflects its lower priority of payment and security position relative to the Tranche A notes. The outlook on the ratings is stable. There are currently RM160 million of Tranche A notes outstanding with the remaining availability under the MTN Programme undrawn.

The non-amortising notes are backed by the collateral property, the 50-storey Menara Citibank located on Jalan Ampang, Kuala Lumpur. Inverfin’s sole business activity is property investment through its ownership and management of Menara Citibank. The company is 50% owned by Menara Citi Holding Company Sdn Bhd, a wholly-owned subsidiary of Citibank Overseas Investment Corporation, and 50% owned by Hap Seng Realty (KL City) Sdn Bhd, a wholly-owned subsidiary of locally listed entity Hap Seng Consolidated Berhad.

The affirmed ratings are premised on the adequacy of security and debt service coverages on the notes, which are backed by the collateral property’s sound operating performance and loan-to-value (LTV) ratios that are commensurate with the ratings. The LTV ratios for Tranche A and Tranche B notes stood at 37.3% and 40.3% respectively based on MARC’s valuation of Menara Citibank of RM496.0 million. The collateral property is stated at its fair value of RM665.0 million as appraised by an independent valuer on Inverfin’s balance sheet as at December 31, 2012. The ratings also take into account the expected maturity date scheduled one year before the legal maturity date to allow for the disposal of the collateral property by the security agent in the event Inverfin fails to redeem the notes on the expected maturity date. This structural feature of the notes will mitigate refinancing risk.

Menara Citibank’s strong tenancy base is mainly supported by the anchor tenant and related entity Citibank Berhad which occupies 48.2% of the building’s net lettable area of 732,823 square feet. As at October 31, 2013, Menara Citibank’s top five tenants account for 79.9% of NLA and contribute 82.5% of rental income. Tenancy renewal risk is mostly mitigated by the company’s long-term relationship with major tenants and competitive rental rates. MARC observes that the collateral property’s occupancy rate has been improving over recent years to its current level of 95%. Underpinned by stable rental and occupancy rates, Inverfin’s cash flow from operations of RM29.3 million in 2012 provided a strong interest coverage of 3.80 times (2011: RM30.2 million; 3.94 times).

Over the intermediate term, the occupancy rate of Menara Citibank is expected to remain resilient and supportive of the transaction. However, rental rates could come under downward pressure as a result of the deepening office space glut in the Klang Valley. Inverfin’s current very strong financial capacity to withstand moderate occupancy and rental stresses coupled with the collateral property’s competitive advantages such as its prime location and low rental values form the basis for the stable rating outlook.

Contacts:

Koh Shu Yunn, +603-2082 2243/ shuyunn@marc.com.my;

David Lee, +603-2082 2255/ david@marc.com.my.