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

Published on 07 Jun 2024.

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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 the superior financial profile and stable operating performance of its parent, KLCC Real Estate Investment Trust (KLCC REIT or the REIT). 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 considers KLCC REIT’s close linkage with its ultimate parent, Petroliam Nasional Berhad (PETRONAS), based on RAM’s methodology for parent-subsidiary rating linkage. PETRONAS has a total direct and indirect stake of 66.94% in KLCCP Stapled Group, which KLCC REIT is a part of. The national oil company is also the master lessee for the bulk of the REIT’s assets, which contributed to more than 90% of net property income (NPI) in FY Dec 2023. For these reasons, KLCC REIT is deemed highly likely to receive extraordinary support from PETRONAS. 

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

KLCC REIT continues to demonstrate financial discipline, evident from its low leverage and debt to operating profit before depreciation, interest and taxes (OBPDIT) ratios of 0.14 times and 2.73 times as at end-December 2023, respectively. Total financing was largely unchanged at RM1.37 bil on the same date, with maturities well spread – a respective 33.6%, 36.9% and 29.5% of total debt will mature in 2024, 2026 and 2031. KLCC REIT has since refinanced the maturing debt in 2024 with another issuance under the same programme in April 2024. KLCC REIT’s fixed charge coverage and funds from operations financing coverage remained robust at 8.51 times and 0.41 times, respectively, in FY Dec 2023 (FY Dec 2022: 8.52 times and 0.41 times). These factors afford considerable rating headroom to withstand the impact of continued headwinds, especially on the retail side which accounts for about 5% of the NPI of the REIT’s portfolio. 

 

Analytical contacts
Lee Cheng En
(603) 3385 2506
chengen@ram.com.my

Liew Kar Ling
(603) 3385 2586
karling@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@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 2024 by RAM Rating Services Berhad



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