Published on 02 Jul 2020.
RAM Ratings has revised the outlook on the respective AA3 and A3 ratings of the Class B and Class C Sukuk under Purple Boulevard Berhad’s (the Issuer) RM450 mil asset-backed Sukuk Ijarah Programme to stable from positive, while reaffirming the respective ratings of the facility (listed below). The transaction is secured against Ampang Point Shopping Centre (APSC or the Property) – a suburban neighbourhood mall in Ampang, Kuala Lumpur.
Amount of up to
Senior Class A
11 November 2022
10 May 2024
Senior Class B
Reaffirmed/Revised from Positive
13 November 2020
13 May 2022
Senior Class C
Guaranteed Class D
11 November 2022*
Subordinated Class E
The revision of rating outlook reflects intensified risk in the operating landscape of retail sector and is expected to delay and limit the upside to cashflow and capital value of APSC. We had previously envisaged an increase in the Property’s cashflow and capital value in 2021 upon the entry of a new anchor tenant, TGV Cinemas Sdn Bhd (TGV) in Mid-2020. This has now been pushed back to possibly 2H FY 2021 as a result of the Covid-19 pandemic and response measures. Other than rental rebates and rental deferment as relief for tenants affected by the Movement Control Order (MCO), APSC’s average rental rate (ARR) may see downward adjustments as tenancy agreements accounting for about one third of its total rental income are due for renewal this year.
The Issuer had received approval from the sukukholders on 22 May 2020 to waive the minimum required financial service coverage ratio (FSCR) trigger for June 2020 as well as to grant rental relief to tenants, as required by the transaction terms. The Issuer has proposed rental relief of up to 50% for a maximum quantum of RM500,000 (around 27% of the Property’s monthly rental income) and/or deferment for selected tenants, over the 2.5 months period starting 18 March 2020. As a result, the transaction’s FSCR is estimated to decline to 1.44 times for 1H FY Dec 2020. Under our stressed scenario, while rental cashflow is expected to comfortably meet profit payment on the sukuk in November 2020, FSCR may remain below the trigger level of 1.5x, thus requiring another waiver of the FSCR trigger in December 2020.
The temporary waiver of the FSCR trigger will, in the interim, reduce the effectiveness of the trigger event mechanism which is intended to prioritise transaction cashflows (including funds built up in Principal Reserve Account for Class B and Class C Sukuk) towards payments to the most senior sukukholders. That said, there is low risk of default in the near term as reserve funds available for Senior Sukuk and Class D Sukuk help to bridge temporary cashflow shortfalls. Cash balance in the PRA amounting to RM30 mil is sufficient to fully redeem Class B and C Sukuk which are due on 13 November 2020.
We are of the view that the current economic stress induced by the covid-19 pandemic may simply result in a temporary dip in operating performance and/or valuation of retail properties, particularly for better positioned malls, albeit the path to recovery could be longer compared to a typical economic cycle.
Despite our expectation that the Issuer may require another waiver of the FSCR trigger in December 2020, APSC’s net property income could potentially return to previous levels of RM21 – 22 mil if it is able to capitalise on TGV’s entry in FY 2021 to negotiate better rental rates for leases expiring next year. Lower profit payment obligations upon the redemption of Class B and Class C sukuk in November will also help raise FSCR to above the trigger level next year under our base case assumptions, unless ARR of APSC declined beyond our expectations.
Teoh Tze Yit
(603) 3385 2531
(603) 3385 2577
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Ratings on Purple Boulevard Berhad