RAM Ratings has reaffirmed the ratings of Quill Retail Malls Sdn Bhd’s (QRMSB or the Company) RM850 million CP/MTN Programme (2013/2020)

Published on 03 April 2014

RAM Ratings has reaffirmed the ratings of Quill Retail Malls Sdn Bhd’s (QRMSB or the Company) RM850 million CP/MTN Programme (2013/2020) as follows:

Table 1: Ratings of the CP/MTN Programme

Tranche	Issue Size (RM million)	Final Ratings	Guarantor
A	Up to 260	AAA(fg)/stable/ P1(fg)	Danajamin Nasional Berhad
B	Up to 260	AAA(bg)/stable/ P1(bg)	DBS Bank Ltd
C	Up to 180	AAA(bg)/stable/ P1(bg)	United Overseas Bank (Malaysia) Berhad
D	Up to 150	Unrated	None

The enhanced ratings reflect irrevocable and unconditional financial or bank guarantees extended by the respective Guarantors. The guarantees enhance the credit profile of Tranches A, B and C of the CP/MTN Programme beyond QRMSB’s stand-alone credit strength.
The Company was set up to undertake the development of some 7 acres of freehold land (with partially-constructed buildings) along Jalan Sultan Ismail, Kuala Lumpur (KL), into an integrated commercial, retail and residential development known as Vision City (the Project). The Project will involve the rehabilitation of a partially-completed retail mall (the Mall) and the development of a residential tower and an office block. The proceeds of the debt issue is utilised for the redevelopment of the Mall, while funds for its repayment will stem mainly from the sale of the Mall to the Employees Provident Fund (EPF).
Under the sales and purchase agreement between QRMSB and EPF (the SPA), the former will receive its first instalment payment from EPF after meeting certain performance targets such as physical completion of the Mall within 36 months of the SPA date and achievement of an occupancy rate of 70% within 12 months of the Mall’s commercial operation date. Nevertheless, we note that EPF reserves the right to waive the second condition and may proceed to make the first instalment payment to the Company at a lower amount. Currently, the Mall has achieved an occupancy rate of approximately 60%.
The Project is strategically located in downtown KL, providing it with much visibility, and is easily accessible by public transports. However, private motorists coming from KL city centre does not have direct access to the Mall. Given its close proximity to Kampung Baru, the management has identified the middle-income mass market as the Mall’s target market. On this note, we understand that the Mall’s current tenant mix is in line with its target market. The Company has secured AEON Co. (M) Berhad as its anchor tenant. 
While we note that partially-completed project may present a higher-than usual level of construction risk leading up to physical completion, some comfort can be derived from the Quill Group of Companies’ established track record in the design and construction of custom-built office and industrial buildings. The Mall is in the advanced stage of construction and is expected to be completed in 3Q 2014.
QRMSB has an aggressive financial profile. As at end-December 2013, the Company had drawn down RM650 million from the CP/MTN Programme. Against shareholders’ advances of RM165 million and shareholders’ equity of RM36 million, its gearing ratio stood at an aggressive 3.2 times as at the same date. In the near term, QRMSB is expected to draw down another RM100 million from the CP/MTN Programme while shareholders are envisaged to inject a further RM25 million into the Company. Nevertheless, its gearing ratio is likely to remain stable at around 3.3 times.

Media contact
Robert Ching
(603) 7628 1031
robertching@ram.com.my