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Purple Boulevard’s Class B and Class C Sukuk revised to stable from positive; no immediate rating impact from waiver of FSCR covenant

Published on 02 Jul 2020.

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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.

 

Sukuk Ijarah

Rating/
Outlook

Rating Action

Amount of up to
(RM million)

Expected
Maturity Date

Legal
Maturity Date

Senior Class A

AAA/Stable

Reaffirmed

95

11 November 2022

10 May 2024

Senior Class B

AA3/Stable

Reaffirmed/Revised from Positive

15

13 November 2020

13 May 2022

Senior Class C

A3/Stable

Reaffirmed/Revised from Positive

15

13 November 2020

13 May 2022

Guaranteed Class D

AAA(fg)/Stable

Reaffirmed

125

11 November 2022*

10 May 2024

Subordinated Class E

Not Rated

-

200

11 November 2022

10 May 2024

* Known as the Class D Mandatory Prepayment Date

 

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.

 

Analytical contact
Teoh Tze Yit
(603) 3385 2531
tyteoh@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

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.

Published by RAM Rating Services Berhad
© Copyright 2020 by RAM Rating Services Berhad



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