Tuesday, March 28, 2017

MARC AFFIRMS RATING OF AAA(fg) ON SEGI ASTANA SDN BHD’S RM470 MILLION GUARANTEED MTN PROGRAMME


MARC has affirmed its rating of AAA(fg) on Segi Astana Sdn Bhd's (Segi Astana) RM470.0 million Medium-Term Notes (MTN) programme with a stable outlook. The affirmed rating and outlook are based on the unconditional and irrevocable financial guarantee insurance provided by Danajamin Nasional Berhad (Danajamin) on which MARC has an insurer financial strength rating of AAA/stable and long-term counterparty credit rating of AAA/stable.

Segi Astana operates gateaway@klia2 under a 25-year build-operate-transfer concession, expiring in 2036. The company has an option to extend the concession for another 10 years. gateway@klia2 is an integrated complex comprising a retail mall with 355,977 sq ft of net lettable area (NLA), 5,690 parking lots in the car park building and a transportation hub at Kuala Lumpur International Airport 2 (klia2) in Sepang, Selangor. By 2H2017, Segi Astana expects to increase the mall’s NLA by 7.4% to 382,415 sq ft with the conversion of space from common areas.

While the occupancy rate at gateaway@klia2 increased to 75.4% as at end-2016 (end-2015: 71.5%), the level remains below management’s target of 85.0%. The mall continues to face competition from the adjoining airside mall in klia2 and from the nearby retail mall, Mitsui Outlet Park KLIA Sepang. MARC notes the recent measure to standardise passenger service charges (PSC) in all Malaysian airports for domestic and ASEAN destinations may also affect footfall at gateway@klia2 if some airlines opt to use KLIA instead.

The rentals from the mall as well as income from both the carpark and transportation hub formed 97.1% of total revenue in 2016. Segi Astana recorded total revenue of RM121.1 million for unaudited 2016, comparable to the RM120.3 million achieved in 2015. Revenue was supported by an 8.0% year-on-year (y-o-y) rise in income from the carpark and transportation hub which was offset by a decrease of 4.7% y-o-y in rental income as a result of a lower average gross rental rate of RM21.56 psf (2015: RM22.54 psf). Pre-tax profit increased sharply to RM27.2 million in 2016 (2015:RM12.7 million), largely due to an extension of the amortisation period on the capitalised cost of the integrated complex from 25 years to 35 years. Excluding the decrease in amortisation expense, pre-tax profit would increase by 25.2% y-o-y to RM15.9 million.

Segi Astana’s cash flow generation is sensitive to occupancy levels and rental rates given its operating and financial leverage. Under MARC’s analysis, if the occupancy rate at the mall remains at 75.0% throughout the tenure of the programme, the rental rate would need to increase by more than 1.5% every three years to meet a minimum debt service coverage ratio of 1.25 times. If the average rental remains at the prospective rate of RM19.65 psf (after the new tenancies which will occupy the additional NLA become effective), over the remaining term of the rated issue, Segi Astana would need to achieve a minimum occupancy rate of 78.9%. In this respect, Segi Astana expects the occupancy rate at the mall to achieve 79.7% by 2H2017 when the new tenancies become effective.

Segi Astana’s debt-to-equity (DE) ratio has improved since the commencement of operations in 2014. As at end-2016, the DE ratio stood at 3.42 times after the repayment of the first tranche of RM30.0 million under the rated programme on December 30, 2016. Although the company has limited financial flexibility, cash flow generation has improved with cash reserves net of tenant deposits of RM64.9 million as at end-2016 compared to RM38.2 million as at end-2015. For 2017, repayments due under the rated programme consist of two tranches of RM20.0 million each payable in June and August 2017.

Noteholders are insulated from any downside risks related to the credit profile of Segi Astana by the irrevocable and unconditional guarantee provided by Danajamin. Any changes in the supported rating or rating outlook will be primarily driven by changes in Danajamin’s credit strength.

Contacts: Wan Abdul Muiz, +603-2082 2260/ muiz@marc.com.my; Yap Lai Ken, +603-2082 2247/ laiken@marc.com.my.
March 28, 2017

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