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 Bintang the Curve (collectively referred to as “the Portfolio” or “the Pr

Published on 27 October 2016

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 Bintang 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 our view that the adjusted valuation of the underlying assets – equivalent to approximately 44% of the Portfolio’s market value as of November 2015 – remains intact, and provides superior asset and debt service coverage to the Senior Bonds of up to a respective 28.5% and 3.81 times. This is despite a marginally lower net property income (NPI) compared to the previous review, as a result of weaker market sentiment. RAM has maintained the adjusted valuation of the Portfolio at RM463.3 million, after taking into consideration recent market trends and capital values of comparable properties.

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). Last but not least, the reaffirmation of the AAA(fg)/Stable ratings of the Guaranteed Class D2 and Guaranteed Class E Bonds reflects similar guarantees extended by Danajamin Nasional Berhad (rated AAA/Stable/P1). 

Comprising 2 retail malls, an office building and a hotel, the Portfolio offers diversity at disposal and some earnings protection, should any particular industry turn sluggish. With the exception of ECurve, the Properties are viewed to be of above–average quality, with RAM Property Scores ranging from 4.00 to 4.25 (out of a maximum score of 5.00). That said, the transaction remains exposed to substantial asset-concentration risk as the largest property – the Curve – accounts for more than half of the Portfolio’s overall market value and NPI. It is also exposed to single-tenant risk as Affin Bank Berhad is the sole tenant of Menara Affin, which contributed 12% of the Portfolio’s gross rental income in FY Dec 2015. Although Affin Bank announced in 2015 of its intention of moving its headquarters to Tun Razak Exchange (TRX), the actual relocation is only expected to take place after 2018, following the expected completion of the first phase of TRX. We note that Affin Bank has renewed its non-cancellable lease up to February 2019, and derive comfort from the knowledge that the property call option for Menara Affin will only expire in January 2019, approximately 6 months before the expected maturity of the Guaranteed Class E Bonds.  

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.  

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 Bintang the Curve, Menara Affin and Menara Boustead (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 received from the Lessees while the principal repayment will be met by the disposal of the Properties.

Analytical contact                                        Media contact
Irene Wong                                                    Padthma Subbiah
(603) 7628 1076                                            (603) 7628 1162
irene@ram.com.my                                       padthma@ram.com.my