FW: RAM Ratings reaffirms debt ratings of Boustead-sponsored vehicle

 

Published on 15 Nov 2017.

RAM Ratings has reaffirmed the ratings of Mecuro Properties Sdn Bhd’s RM900 million Nominal Value Bonds. The transaction is currently backed by 4 properties – Menara Affin, The Curve shopping mall, eCurve, and Royale Chulan The Curve (collectively referred to as “the Portfolio” or “the Properties”). The Senior Class A2, Senior Class B and Senior Class C Bonds under the transaction are collectively referred to as “the Senior Bonds”.

RM900 million Nominal Value Bonds	Rating/Outlook	Outstanding Amount
Senior Class A2	AAA/Stable	RM105 million
Senior Class B	AAA/Stable	RM12 million
Senior Class C	AAA/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		RM760 million

 

The reaffirmation of the AAA/Stable ratings of the Senior Bonds is premised on the Portfolio’s stable performance during the reviewed period. In FY Dec 2016, the Portfolio’s net property income (NPI) remained at RM41.6 million (FY Dec 2015: RM41.8 million), slightly lower than RAM’s assumed sustainable cashflow of RM42.7 million. Nevertheless, the ratings remained intact given the sufficient collateral support and debt-servicing ability for the respective ratings. Meanwhile, the reaffirmation of the AA2(bg)/Stable rating of the Guaranteed Class D1 Bonds reflects the irrevocable and unconditional guarantee extended by RHB Bank Berhad (rated AA2/Stable/P1 by RAM), while the reaffirmation of the AAA(fg)/Stable ratings of the Guaranteed Class D2 and Guaranteed Class E Bonds reflects the guarantees extended by Danajamin Nasional Berhad (rated AAA/Stable/P1).  

Mainly located in Mutiara Damansara and along Jalan Raja Chulan in Kuala Lumpur, the Portfolio comprises properties from different business segments, i.e. retail, office and hospitality, thereby moderating the extent of volatility in different business cycles. With the exception of eCurve, the quality of the Properties is deemed above average, with RAM Property Scores ranging from 4.00 to 4.25 (out of a maximum of 5.00). After the completion of the second property call option, RAM expects the overall asset quality of the remaining portfolio, i.e. Menara Affin and eCurve, to weaken. Despite Affin Bank Berhad’s announcement in 2015 to shift its headquarters from Menara Affin, we derive comfort from the non-cancellable nature of its lease (up to February 2019), with the property call option for Menara Affin expiring in January 2019. We note that property- and tenant-concentration risks will be more pronounced after the redemption of the Senior Bonds and Guaranteed Class D Bonds in January 2018, as Affin Bank will remain the sole tenant of Menara Affin - the highest-valued remaining asset. 

The ratings are also supported by the transaction’s various structural features, 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. In addition, failure to meet minimum performance covenants at the Properties’ level will result in a Trigger Event. To date, the Portfolio has complied with all the covenants and has performed well above the covenanted level of RM25 million. The next performance trigger will be reduced to RM10 million post-redemption. 

In July 2017, Boustead Curve Sdn Bhd (the holder of the Property Call Option) exercised its rights under the second property call option for The Curve and RCTC, by serving the irrevocable call option notices on both properties to the Issuer. The Property Call Option holder is expected to fulfil the purchase of both properties through internal funds and debt issues by the parent company, Boustead Holdings Berhad. The exercise price will be determined upon the conclusion of the Sale and Purchase Agreements of the respective Properties, but cannot be lower than the nominal outstanding amount of the Senior Bonds and Guaranteed Class D Bonds. 

Mecuro is a special-purpose vehicle incorporated to facilitate a sale-and-leaseback transaction sponsored by Boustead Properties Berhad (the Seller). The transaction had initially been backed by 5 properties – The Curve, eCurve, Royale Chulan The Curve, Menara Affin and Menara Boustead (the property call option was exercised in July 2015 to redeem the Senior Class A1 Bonds). Subsequent to the sale of the Properties, Mecuro will lease them back to the Seller; the coupon obligations under the Bonds will be met via the semi-annual lease payments from the Lessees while the principal repayment will be met by the disposal of the Properties. 

 

Analytical contact
Irene Wong
(603) 7628 1076
irene@ram.com.my

Media contact 
Padthma Subbiah
(603) 7628 1162 
padthma@ram.com.my