Inverfin Sdn Bhd - 2007

Under this transaction, Inverfin Sdn Bhd (Inverfin), the owner of Menara Citibank will issue up to RM200.0 million Commercial Papers/ Medium Term Notes (Notes) comprising RM160.0 million Class A and RM40.0 million of Class B Notes. MARC has assigned ratings of MARC-1/AAA and MARC-1/AA to Inverfin’s RM160.0 million Class A and RM40.0 million Class B Notes respectively. The ratings reflect the quality of the collateral property, Menara Citibank and its tenancy profile; low loan-to-value ratios (LTVs) for Class A and B Notes at 40.1% and 50.2%, respectively; and the structural features incorporated into the transaction. Tenant concentration is relatively high with Citibank Berhad occupying 42.7% of total net lettable area, but partly mitigated by overall tenant quality. The strong credit standing of Inverfin’s major shareholders, Menara Citi Holding Company Sdn Bhd (50% stake), a wholly-owned subsidiary of Citibank Overseas Investment Corporation, and CapitaLand Limited (30% stake), and the restriction on changes in shareholding during the tenure of the Notes provide further support to the transaction.

The transaction is structured on an interest-only basis, with no amortization of principal prior to maturity date. The Notes have expected and legal maturities of 5.5 years and 7 years from first issuance. Monthly rental income will form the source of payment of coupons and senior expenses under the CP/MTN programme, whilst the principal repayment will be funded by refinancing of the notes or disposal of Menara Citibank. MARC opines that the 1.5 years tail period is sufficient to procure the funds required for principal redemption of the Notes.

Inverfin’s principal activities are currently limited to property investment and office management of its single property, Menara Citibank. Although Inverfin is not a special purpose entity, it is required to comply with certain covenants as well as restrictions on activities and dividend distributions during the tenure of the transaction. Inverfin has no registered employees, and its property management and financial reporting functions are essentially undertaken by an independent property manager. Inverfin’s historical financial performance is characterized by stable profitability, healthy cashflow coverages and steady growth in shareholders’ funds since FY 2003.

The Notes will be secured by, amongst others, Menara Citibank, a 50-storey office building with a net lettable area of 758,608 square feet (sq ft) located on Jalan Ampang in Kuala Lumpur’s Golden Triangle. The building is currently approximately 99% occupied and has achieved average occupancy rates in excess of 90.0% since 2002. The strong occupancy levels and increases in rental rates is reflected in the property’s average operating profit of approximately RM28.1 million per annum over the past 5 years. The steady uptrend in operating profit is expected to continue, going forward, in view of the quality of the property, its historically high occupancy rates and planned upgrading of the property which will be funded by proceeds from Class B Notes.

Using a discounted cash flow valuation approach, MARC’s assessed capital value for the property is RM398.7 million, a 13.0% downward adjustment from its market value. MARC has applied LTVs of 40.1% and 50.2% for AAA and AA respectively. Inverfin’s debt service cover ratios (DSCR) under various stressed scenarios indicate a high capacity in meeting coupon payments and other expenses throughout the tenure of the transaction. Inverfin can withstand a reduction in occupied space of up to 43% (with non-renewal of Citibank’s tenancy agreement) combined with a 10% increase in operating expenses.