Published on 12 Sep 2019.
RAM Ratings has reaffirmed the AAA/Stable rating of IGB REIT Capital Sdn Bhd’s (IGB REIT Capital or the Issuer) RM1.2 billion First Tranche MTN. This is the first MTN issuance under IGB REIT Capital’s RM5.0 billion MTN Programme (the Programme). IGB REIT Capital is a special-purpose vehicle incorporated by IGB Real Estate Investment Trust (IGB REIT) to facilitate the fundraising exercise under the Programme. The First Tranche MTN is secured against Mid Valley Megamall (the Mall or the Property), with the issuance proceeds used to refinance IGB REIT’s existing term loan facility.
The reaffirmation of the First Tranche MTN’s rating is premised on the transaction’s superior collateral support, afforded by the Mall’s stable and robust performance. In FY 2018, the Mall’s net property income (NPI) grew 3.05% y-o-y to RM 286.36 mil as a result of a slightly wider NPI margin and continued cost containment management, despite the challenging retail sector. Recent tenant reconfiguration on the lower ground floor of the Mall brought in higher-yielding tenants, which should also support its robust cashflow performance. The Mall’s 1H FY 2019 NPI of RM146.70 mil indicates that the Mall is on track to outperform its FY 2018 performance and management’s own projection for FY 2019.
Based on RAM’s revised sustainable cashflow assumption of RM290 mil (from RM260 mil previously), the Property’s adjusted valuation continues to provide superior credit support for the AAA rating, commensurate with the required benchmark for the rating. The transaction’s LTV ratio and stressed debt service coverage ratio (DSCR) are 33.10% and 2.84 times, respectively. Additionally, the Mall had met all relevant financial covenants during the review period.
The rating is further underpinned by supportive structural features and performance triggers at both IGB REIT and the Property levels, to initiate early disposal of the Mall if covenants are breached and not remedied within the stipulated period. The Issuer’s ongoing coupon obligations will be adequately met by available reserves and the Property’s expected cashflow, even during a trigger event. This, coupled with the transaction’s two-year tail period, provides sufficient time for the Property’s disposal, to ensure timely redemption of the MTN by the legal maturity date.
Teoh Tze Yit
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Ratings on IGB REIT Capital Sdn Bhd