Inverfin Sdn Bhd - 2009

The affirmed ratings of MARC-1/AAA and MARC-1/AA to Inverfin’s Notes comprising RM160.0 million Class A and RM40.0 million Class B Notes respectively are supported by the quality and strategic location of the collateral property, reasonably low loan-to-value ratios (LTVs) for the respective notes, consistently high occupancy levels and structural features incorporated into the transaction. The ratings carry a stable outlook.

Inverfin is required under the structure to limit its principal activities to property investment and office management of its single property, Menara Citibank, and to comply with certain covenants as well as restrictions on changes in its shareholding and dividend distributions during the tenure of the transaction. Inverfin’s major shareholders are Menara Citi Holding Company Sdn Bhd, a wholly-owned subsidiary of Citibank Overseas Investment Corporation (COIC) with a 50% stake, and Hap Seng Realty (KL City) Sdn Bhd, a wholly owned subsidiary of Hap Seng Land Sdn Bhd and ultimate subsidiary of Hap Seng Consolidated Berhad, holds the remaining approximately 50%, a stake recently acquired from CapitaLand and Amsteel.

The Notes are structured on an interest-only basis with no amortisation of principal prior to maturity date. Monthly rental income will form the source of payment of coupons and senior expenses under the CP/MTN programme, while the principal repayment will be funded by refinancing of the Notes or disposal of Menara Citibank. The Notes have an expected and legal maturity of 5.5 years and 7 years respectively, and MARC opines that the 1.5-year tail period is sufficient to procure the funds required for principal redemption of the Notes. The Notes are secured by a first legal charge over Menara Citibank and designated accounts, and assignment over insurance policies. 

The collateral property, Menara Citibank, is a 50-storey office building with a net lettable area of 733,634 square feet (sq ft) located on Jalan Ampang in Kuala Lumpur’s Golden Triangle. As at November 2009 the property’s occupancy rate remained stable at 92.6% (2008: 98.9%) with a weighted average monthly rental rate maintained at RM5.71 per sq ft since December 2008. Tenant concentration is relatively high, with Citibank Berhad (Citibank) occupying 42.7% of total net lettable area. Mitigating the risk of early termination is the requirement for the tenant to provide rental income equivalent to the remaining term of the lease as compensation to Inverfin. As at October, 2009, tenancies expiring between 2010 and 2012 represent 92.0% of the total occupied area. MARC expects Inverfin’s revenue to remain stable in the medium term in view of Talisman Malaysia Limited’s recent renewal of its lease agreement up to January 2012, maintaining Menara Citibank’s current weighted average rental term of approximately 2.4 years.
 
Citibank Malaysia, Menara Citibank’s anchor tenant, ranks among the largest incorporated foreign banks in Malaysia. Notwithstanding the modest size of Citibank Malaysia’s operations relative to the size of its parent, MARC notes that Citibank Malaysia acts as the center for Citigroup’s regional trade processing, serving 13 countries in Asia Pacific region. The bank focuses on the consumer and corporate banking segments and is well established in the credit cards and residential mortgages segment. It has remained consistently profitable, supported by its resilient earnings base and defensible market position. Its total assets and shareholder’s equity as at end-June 2009 amounted to RM42.4 billion (2008: RM46.1 billion) and RM3.3 billion (2008: RM3.4 billion) respectively.

Inverfin reported net operating income (NOI) of RM38.1 million for the financial year ended December 31, 2008 (FY2008), in line with initial projections. Therefore, MARC has maintained its discounted cash flow valuation of Menara Citibank of RM398.7 million. MARC has applied LTVs of 40.1% and 50.2% to size the ‘AAA’ Class A Notes and ‘AA’ Class B Notes respectively.  Inverfin’s estimated debt service coverage ratios (DSCRs) for FY2008 stood at 7.0x for Class A notes, within the minimum DSCR requirement of 2.2x. Cash flow coverage remained adequate under stress scenarios, which include reduction in rental revenue of up to 55% and higher operating expenses.

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