TRUSMADI CAPITAL SDN BHD – ISSUE 1 - 2021 |
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| Report ID | 60538900422 | Popularity | 725 views 45 downloads | |||||
| Report Date | Dec 2021 | Product | ||||||
| Company / Issuer | Trusmadi Capital Sdn Bhd | Sector | Property | |||||
| Price (RM) |
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| Rationale |
Rating action MARC has assigned long-term ratings of AAA, AA and A to Trusmadi Capital Sdn Bhd’s issue of RM235 million Class A, RM40 million Class B, and RM25 million Class C Medium-Term Notes (MTN). Concurrently, the rating agency has assigned a MARC-1 rating to Trusmadi Capital’s issue of up to RM300 million Commercial Papers (CP). The rated MTN and/or CP issuances are subject to a combined issuance limit of RM300 million. The outlook on all ratings is stable. Trusmadi Capital is a special purpose funding vehicle of Maybank Trustee Berhad (acting on behalf of Sentral REIT). The MTN and CP issuances will be secured by a third-party first legal charge on the collateral property Menara Shell, a 33-storey purpose-built office with a total net lettable area (NLA) of 557,053 sq ft. Rationale The assigned ratings reflect the loan-to-value (LTV) ratios of the classes that are within the LTV benchmarks for the rating bands. In arriving at the value of the collateral property, MARC used a stabilised net operating income of RM41.2 million based on the four-year average (2020-2023). Menara Shell is valued at RM549 million under MARC’s income capitalisation approach, which represents a 16.4% discount of its market value of RM657 million as ascertained by an independent valuer as at December 31, 2020. The loan-to-value (LTV) ratios for each class are as below: Outstanding rated issuance (RM million) Actual LTV Rating LTV benchmark Class A MTN 235 42.8% AAA < 43.0% Class B MTN 40 50.1%^ AA < 51.0% Class C MTN 25 54.6%^^ A < 55.0% CP 300 54.6% MARC-1 < 55.0% For 1H2021, the collateral building had an average occupancy rate of 96% with an average rental rate of RM8.15 psf. We view that its strategic location within the KL Sentral transportation hub and the grade A building status remain strong drivers for Menara Shell’s strong operational performance. The collateral property is exposed to tenant concentration risk given that five clients accounting for 90.8% of NLA and 91.7% of total rental income. Its anchor tenant Shell People Services Asia Sdn Bhd (SPSA), wholly owned by Royal Dutch Shell Plc, occupies 304,673 sq ft (54.7% of NLA). The concentration risk is mitigated by long-term tenancy agreements as early termination allows for claims of rental over the remaining unexpired term of the leases. MARC also draws comfort from the expertise of Trusmadi Capital’s parent Sentral REIT and good track record of the REIT manager, Sentral REIT Management Sdn Bhd (SRM) in managing tenant retention to mitigate occupancy and renewal risks. SRM manages nine properties with a NLA of 2.11 million sq ft, recording a lease renewal rate of 85% and an average occupancy rate of 92% as at end-June 2021. Under the issue structure, the MTN and CP are required to have a minimum debt service cover ratio (DSCR) and security cover ratio (SCR) of 1.50x throughout the tenure. The issuances are structured on an interest-only basis with no amortisation of principal prior to their maturity dates. The bullet principal repayment of the MTN and/or CP is expected to be funded by proceeds from refinancing or the disposal of Menara Shell. The rating case projections show that the rated MTN and/or CP based on full issuance will achieve a minimum DSCR of 3.01x (without cash). MARC’s sensitivity analysis demonstrates that the issuance would be able to withstand a moderate degree of resilience in the event of any significant reduction in rental revenue; under this circumstance, Menara Shell’s rental revenue would need to decrease by a significant 36% before breaching the covenanted DSCR of 1.50x. We note that Trusmadi Capital’s ability to increase its leverage in relation to the rated MTN and/or CP is capped by the requirement to maintain a SCR of at least 1.50x which provides a buffer against a decline in Menara Shell’s market value. The refinancing risk is mitigated by the two-year tail period between the expected and legal maturity dates. For its CP, the availability of a commitment provided by investors to subscribe to the CP throughout the expected tenure will address potential rollover risk. Proceeds from Trusmadi Capital’s issuances will be utilised to repay the outstanding issuances of sister company Kinabalu Capital Sdn Bhd’s RM200 million CP, and RM20 million MTN under Issue 1 and RM40 million CP under Issue 2 on maturity i.e. on December 17, 2021. Rating outlook The stable outlook assumes that the collateral property will maintain their operational and financial performance in line with the projections that will remain supportive of the LTV ratios for the rating bands. Rating trajectory Downside scenario The ratings may come under pressure if any of the tenancies is terminated, or not renewed, or if tenancies are renewed at rental rates that are not supportive of the stabilised NOI to be able to maintain LTV ratio thresholds. Key strengths
Key risks
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