Vast Winners Sdn Bhd - 2009

MARC has affirmed its AAA, AA and A+ ratings on Vast Winners Sdn Bhd’s (Vast Winners) RM650.0 million Medium Term Notes Programme’s (MTN Programme) senior classes of RM190.0 million Class A, RM40.0 million Class B and RM20.0 million Class C, respectively. The outlook on the ratings is stable. The ratings mainly reflect the satisfactory performance of the securitised property, which has resulted in better-than-expected operating cash flows; the high appraised value of the securitised property as collateral backing the transaction, and the relatively low loan-to-value (LTV) ratios of each rated class. The liquidity support from CapitaLand Retail Limited (CRTL), a wholly-owned subsidiary of Singapore’s CapitaLand Limited (CapitaLand), through an irrevocable and unconditional undertaking to cover shortfalls in the debt service reserve account (DSRA) continues to support the rating. Additionally, MARC views the dependency of the transaction on the call option granted to CRTL as the mechanism of principal repayment favourably. This is because of Capitaland’s reputation, track record in financing transactions (which indicates a high probability of executing a successful refinancing), above average financial position of CRTL, and the liquidity reserves of CapitaLand amounting to SGD4.2 billion as of June 2009. The rental stability of the securitised property, i.e. 61.9% of commercial areas and parcels within Sungei Wang Plaza, is perceived to be high, even under the property market down cycle. Its good location and high accessibility, accompanied by the diverse mix of tenants contributed to the resilient traffic and sales performance in 2008, allowing upward revision in rental rates. The Subordinated Class D MTNs of up to RM400.0 million is unrated.

Vast Winners Sdn Bhd (Vast Winners) is a special purpose vehicle incorporated to facilitate CRTL’s acquisition of the securitised property from the originator, Sungei Wang Plaza Sdn Bhd (SWPSB). Proceeds from the issues were utilized mainly for the sales consideration. Under this transaction, Exquisite Phoenix Sdn Bhd (Exquisite Phoenix), an associate company of CapitaLand, has entered into a Sale and Purchase Agreement (SPA) with SWPSB to acquire the securitised property from SWPSB for a cash consideration of RM595 million, funded by proceeds from the MTN Programme. Pursuant to the SPA, all rights under all the tenancy agreements that existed between the tenants and SWPSB were transferred to EPSB. The sale of the property was deemed as a true-sale to Vast Winners on June 25, 2008 through novation of all rights and obligations of EPSB on the securitised property to Vast Winners. At maturity, CRTL has the option to purchase back the securitised property from Vast Winners by exercising the Senior MTNs call options, granted by the Trustee.

Given the non-amortising structure of the notes, the LTV ratios for the Class A, Class B and Class C MTNs remained at 41.1%, 49.8% and 54.1% respectively, based on MARC’s discounted cash flow valuation of RM462.1 million for the property, and the balance in the DSRA continues to be in compliance with its minimum required level. During the period under review (June 2008 to December 2008), the total net operating income generated by the securitized property stood at RM23.1 million, 7.4% higher than the initial projection mainly attributable to the upward revision of rental rates. Lease maturities are manageable in view that the average remaining tenancy period will extend up to first half of 2011. This and timely payment by all the tenants should ensure cash flow sustainability over the near-to-intermediate term. The securitised property possess some tenant concentration risk, as out of the 377 tenants in the portfolio, the top tenant generates about 12% of rent revenue, and the top 10 tenants collectively generate about 28.2%. The possible downside of the concentration risk is mitigated till October 2011 as the top tenant has renewed the tenancy agreement. Well supported by its good location and competitive rental rates, the securitised property has been consistently achieving near 100% occupancy since 2008 through 2009.

Vast Winners’ cash flow protection is relatively strong with DSCRs of 5.1x, 4.2x and 3.8x for Class A, Class B and Class C notes respectively, comfortably higher than the minimum DSCR requirement of 2.1x, 1.9x and 1.7x for AAA, AA and A+ rated notes respectively.

Commingling risk is deemed low under this transaction as monthly cash flows generated by the securitised property are trapped in accounts mainly controlled/governed by the Trustee. The utilisation of funds for operating expenses is systematically defined and a certain amount of flexibility is given for asset enhancement activities for potential yield growth. MARC has observed some reconfiguration works undertaken on the securitised property which has successfully converted parts of areas into higher yielding retail space.

The stable outlook reflects expectations that Vast Winners will maintain its cash flow generation ability in the future premised on the quality and the performance of the securitised property. This is further augmented by CRPM’s real estate property management experience. MARC will continue to monitor the financial condition of CRTL in relation to its role as the call option holder for the principal redemption of the Senior MTN notes.

Strengths

Risk/ Challenges