RAM Ratings reaffirms AAA rating of Ara Bintang’s First Senior MTN

Published on 29 January 2014

RAM Ratings has reaffirmed the AAA/Stable rating of Ara Bintang Berhad’s RM330 million First Senior MTN. Ara Bintang is a special-purpose vehicle incorporated for the securitisation exercise involving 2 shopping malls in the heart of KL, Starhill Gallery and Lot 10 Shopping Centre – collectively known as “the Properties” – which had a combined market value of RM1.11 billion as at 31 December 2012.

Led by a strong 16.3% y-o-y growth in Lot 10’s annualised net property income (NPI) for 9M FY Dec 2013, the portfolio’s performance during the reviewed period has converged towards our sustainable-cashflow assumption following the asset-refurbishment/tenant-restructuring exercise in 2011-2012. This, in turn, supports the loan-to-value ratio of 44.3% and debt service coverage ratio of 2.00 times. Despite the more challenging environment expected for the retail market in 2014 amid competition from upcoming malls and possibly depressed domestic spending on account of the Government’s subsidy-rationalisation programme, we expect the portfolio to sustain this positive momentum. In conjunction with Visit Malaysia Year 2014, retail spending by tourists may offset any moderation in locals’ spending.

The reaffirmation is further underscored by the Properties’ above-average quality, backed by their strategic location in KL, i.e. Bukit Bintang, as well as the transaction’s structural features. Such features include mechanisms to initiate the sale of the Properties upon the occurrence of trigger events and the availability of cash reserves in the designated accounts to address liquidity risk.

The transaction’s strengths are, however, moderated by competition from established and upcoming malls in the vicinity that target the same affluent consumers, as well as the high level of tenant-concentration risk as YTL Corporation Berhad (the sponsor of the transaction) takes up a significant portion of the Properties’ net lettable areas. We further highlight the risk of a potential delay in the sale of the Properties due to provisions in the transaction documents, which allow the Master Tenant or the Call Option holder to lodge a private caveat against the titles to the Properties under specific scenarios. This is, however, moderated by our view that as both parties are related to the sponsor, they will not unnecessarily withhold the withdrawal of the private caveat (if lodged) to the detriment of the transaction.

Media contact

Yong Keck Phin

(603) 7628 1183

keckphin@ram.com.my