RAM Ratings reaffirms AAA/Stable rating of sukuk issued by KLCC REIT’s funding conduit

Published on 22 Apr 2020.

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RAM Ratings has reaffirmed the AAA/Stable rating of Midciti Sukuk Berhad’s RM3.0 bil Sukuk Murabahah Programme (2014/2044). As Midciti Sukuk is a financing vehicle of KLCC Real Estate Investment Trust (KLCC REIT or the REIT), the rating of the Sukuk reflects the credit profile of the REIT. KLCC REIT owns PETRONAS Twin Towers, Menara 3 PETRONAS and Menara ExxonMobil, all of which are deemed to have superior asset quality. Midciti Sukuk has no operations of its own and depends on inter-company payments to meet its obligations. 

The reaffirmation of the sukuk rating is driven by KLCC REIT’s sturdy operating performance and superior financial position. For FY Dec 2019, the REIT’s net property income margin held high at around 95.00%, attributable to the triple-net lease (TNL) arrangements for two out of its three assets. Its respective leverage and gearing ratios stayed low at 0.14 times and 0.17 times as at end-December 2019. As a result, the REIT’s fixed-charge coverage ratio and funds from operations financing coverage ratio were still robust at 8.00 times and 0.37 times, respectively.  The longer-than-industry average leases (with a remaining weighted-average lease expiry period of 7.80 years) based on TNL arrangements help to alleviate industry uncertainties and provide stability to the REIT’s cashflow, particularly amidst weakness in the office property sector.

The reaffirmation also considers our view that the REIT, as part of KLCCP Stapled Group (the Stapled Group or the Group), will maintain its close linkage to its ultimate parent, PETRONAS, based on RAM’s methodology for parent-subsidiary rating links. The units of the REIT are stapled to the shares of KLCC Property Holdings Berhad (KLCCP) by a “stapling deed”. PETRONAS – the national oil company – effectively owns 75.47% of the Stapled Group via KLCC (Holdings) Sdn Bhd and acts as head lessee for the REIT’s assets except for 60.00% net lettable area of Menara Exxonmobil. Parental support was further demonstrated in 2017 when PETRONAS took up vacant space previously occupied by ExxonMobil, bringing the occupancy rate of Menara ExxonMobil back up to 100.00% (from 60.00%). 

Being part of the KLCCP Stapled Group has already enabled the REIT to undertake development activities via KLCCP. KLCCP currently owns three mature assets (Menara Dayabumi, Suria KLCC Mall and Mandarin Oriental, Kuala Lumpur) and holds a 33.00% stake in Menara Maxis. This provides the REIT a ready pipeline of matured assets, which could help sustain its portfolio yield over the long term. 


Analytical contact
Irfan Afifah Mohd Zaki                
(603) 3385 2551                    

Media contact
Padthma Subbiah
(603) 3385 2577

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

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