RAM Ratings affirms AAA/Stable rating of sukuk issued by Midciti Sukuk Berhad, KLCC REIT’s funding conduit

Published on 02 Jun 2023.

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RAM Ratings has affirmed the AAA/Stable rating of Midciti Sukuk Berhad’s (Midciti) RM3.0 bil Sukuk Murabahah Programme (2014/2044) in view of KLCC Real Estate Investment Trust’s (KLCC REIT or the REIT) superior financial profile and stable operating performance. Incorporated as the funding conduit of KLCC REIT with no operations of its own, Midciti depends on inter-company transactions with the REIT to meet its obligations under the Sukuk Programme.

The rating also considers KLCC REIT’s close linkage with its ultimate parent, Petroliam Nasional Berhad (PETRONAS) – the national oil company. In the unlikely event of financial distress, RAM views that KLCC REIT is highly likely to receive extraordinary support from PETRONAS. The REIT is part of the KLCCP Stapled Group in which PETRONAS has a total direct and indirect stake of 66.94%. Over 90% of the leased area and net property income (NPI) of the REIT’s portfolio are attributable to PETRONAS.

Comprising the iconic PETRONAS Twin Towers, Menara 3 PETRONAS and Menara ExxonMobil, KLCC REIT is the largest REIT in Malaysia by market capitalisation and property value. We view the quality of these assets to be exceptional, underpinned by their strategic location and long-term triple-net lease agreements signed with PETRONAS that provide the REIT with earnings certainty and a robust NPI margin of 95%. A 9% contractual rental step-up which takes effect from December 2023 and October 2024 at Menara 3 PETRONAS and PETRONAS Twin Towers, respectively, will further boost KLCC REIT’s earnings. 

The REIT’s superior financial profile is evident from its low gearing and leverage ratios of 0.17 times and 0.14 times, respectively. As at end-December 2022, total financing was largely unchanged at RM1.38 bil. Thanks to stronger earnings at Menara 3 PETRONAS’s retail podium that surpassed pre-Covid 19 levels owing to higher average rental rates, KLCC REIT’s robust fixed charge coverage and funds from operations financing coverage improved further to a respective 8.52 times and 0.41 times in FY Dec 2022 (FY Dec 2021: 8.31 times and 0.38 times). These factors afford considerable rating headroom to withstand the impact of continued headwinds, especially on the retail side which contributes about 5% of the portfolio’s NPI. 


Analytical contacts
Liew Kar Ling                
(603) 3385 2586                    

Tan Han Nee
(603) 3385 2529


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 2023 by RAM Rating Services Berhad


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