Special Coral Sdn Bhd - 2012

MARC has affirmed the following long-term ratings on Special Coral Sdn Bhd’s (Special Coral) RM300 million Senior Class and RM800 million Subordinated Class Medium Term Notes (MTN) under its RM1.1 billion MTN Programme:

Medium Term Notes Programme                  Issue size                         Rating                         Outlook
Senior Class MTNs   
1.    Class A                                                    RM160 million                   AAA                             Stable
2.    Class B                                                    RM40 million                     AA                               Stable
3.    Class C                                                    RM35 million                     A                                 Stable
4.    Class D                                                    RM25 million                     BBB                             Stable
5.    Class E                                                    RM10 million                     BB                               Stable
6.    Class F                                                    RM30 million                     B                                  Stable
   
Subordinated Class MTNs                                RM800 million B- Stable
Total                                                              RM1.1 billion  

The outlook for all ratings is stable. The rating actions affect outstanding amounts of RM160.0 million, RM40.0 million and RM460.0 million of Senior Class A, Senior Class B and Subordinated Notes respectively. There have been no further issuances aside from these notes classes.

Special Coral is a bankruptcy remote special purpose vehicle established for the purpose of issuing the RM1.1 billion MTN Programme. The bulk of the proceeds from the initial issuance were used to finance the acquisition of Queensbay Mall (the Property), an 8-storey shopping complex situated in Bayan Lepas, Penang. Further issuance proceeds may be used to meet future capital expenditure and working capital requirements for Queensbay Mall and to refinance any MTNs on their respective expected maturities. Under this transaction, Senior Noteholders have a first legal charge over the strata titles of the Property. Senior Notes’ coupon payments are serviced by cash flows generated by the Property, while principal payments will be met with proceeds from: 1) exercise of a property call option by the option holder; 2) exercise of a Senior Notes call option by the option holder; 3) disposal of the Property by the security trustee via power of attorney; or 4) refinancing of the notes. The call options – the Senior MTNs Call Option and Property Call Option – are held by CapitaMalls Asia Limited (CMA).

The rating action for the respective classes of Senior Notes reflects satisfactory loan-to-value (LTV) ratios and projected debt service coverage ratios (DSCR). The ratings are also supported by the Property’s above-average asset profile, the transaction’s structural features, and the strong credit profile of CMA. MARC continues to view CMA’s credit profile as very strong, premised on its position as a 65.5%-owned subsidiary of CapitaLand Limited (CapitaLand) and its strong historical financial performance to date. Moreover, the transaction’s servicer, CapitaLand Retail Malaysia Sdn Bhd, is a wholly-owned subsidiary of CMA and is able to leverage on its parent’s strong track record and expertise in managing shopping malls.

The LTV ratios for Class A through Class F notes have been maintained at 40.1%, 50.1%, 58.9%, 65.2% 67.7% and 75.2% respectively. At the same time, the projected DSCR ratios for the outstanding Class A and B Senior Notes are 5.9 times and 4.6 times respectively. Meanwhile, the affirmed rating for the Subordinated Notes continues to reflect its subordinated priority in payment relative to the Senior Notes and higher risk of non-payment under stressed conditions. The risk of shortfalls in monthly rental collections against semi-annual coupon payments is mitigated by an undertaking by CMA to cover any such shortfalls. The absence of amortisation requirements of the MTN programme exposes noteholders to refinancing risk at maturity or execution risk in asset disposal. These risks are meaningfully moderated by the call options held by CMA, trigger events and the property’s favourable risk profile.

For the period under review (April 1, 2011 – December 31, 2011), Queensbay Mall generated a nine-month net operating income (NOI) of RM28.5 million on the back of RM48.9 million in total revenue, giving rise to a strong NOI margin of approximately 58.3%. At the same time, the annualised actual NOI of RM38.0 million is higher than MARC’s stabilised NOI of RM36.0 million. The better-than-expected results were supported by the Property’s high average occupancy rate of 94.9% and higher average monthly rental rates.

The stable rating outlook on the senior note classes is premised on expectations that the Property will continue to show satisfactory cash flow performance and maintain a valuation profile that is consistent with the ratings. Furthermore, the outlook also assumes that CMA will maintain its robust financial profile.

Major Rating Factors

Strengths