Inverfin Sdn Bhd - 2013

MARC has assigned ratings of AAA and AA to Inverfin Sdn Bhd’s (Inverfin) RM185.0 million Tranche A notes and RM15.0 million Tranche B notes respectively. The notes are to be issued under Inverfin’s RM200.0 million Medium Term Notes (MTN) Programme. The outlook on the ratings is stable.

The notes are structured on an interest-only basis and backed by the collateral property, the 50-storey Menara Citibank located on Jalan Ampang, Kuala Lumpur. Proceeds from the initial RM160 million drawdown would be mainly used to refinance Inverfin’s outstanding RM160.0 Class A notes, which are currently rated AAA/Stable by MARC, issued under its existing RM200.0 million Commercial Papers/MTN Programme. Inverfin’s principal business activity is property investment, with Menara Citibank as its sole asset. The company is 50%-owned by Menara Citi Holding Company Sdn Bhd, a wholly-owned subsidiary of Citibank Overseas Investment Corporation, and 50%-owned by Hap Seng Realty (KL City) Sdn Bhd, a wholly-owned subsidiary of locally listed entity Hap Seng Consolidated Berhad.

The assigned ratings reflect the collateral property’s financial and operating performance and its loan-to-value ratios of 37.3% and 40.3% for Tranche A and Tranche B respectively which MARC regards as commensurate with the assigned ratings as well as the expected resilience of the notes to rental rate and occupancy stresses. Menara Citibank’s anchor tenancies and historically high occupancy rate, which averaged 89% from 2008 to 2011 and currently stands at 95% as at October 31, 2012, continue to underpin the robust financial and operating performance of the office building. MARC’s valuation of Menara Citibank based on an assumed stabilised net operating income of RM37.2 million discounted by a capitalisation rate of 7.5% yields a valuation of RM496.0 million, which is 25% lower than the April 2012 appraised value of RM665.0 million by an independent valuer. The ratings also consider a one-year tail period between the expected and legal maturities to allow for the disposal of the collateral property by the security agent in the event Inverfin is unable to procure funds for principal redemption of the notes on the expected maturity date. MARC believes this will mitigate refinancing risk for the non-amortising notes.

Inverfin’s historical financial performance is characterised by stable profitability and cash flow generation, and healthy capitalisation. In 2011, Inverfin registered pre-tax profit of RM28.4 million (2010: RM30.2 million) and cash flow from operations of RM30.2 million (2010: RM28.3 million). The stable financial and operating performance of Inverfin reflects Menara Citibank’s ability to maintain a high occupancy rate.

Notwithstanding the building’s favourable location within the Kuala Lumpur Golden Triangle and close proximity to the Kuala Lumpur City Centre, new office space coming onstream over the next two years may exert downward pressure on Menara Citibank’s rental rates. Nevertheless, with rental rates of new and upcoming office space projected around RM9.00 per square feet and one of its two shareholders as an anchor tenant, Menara Citibank’s occupancy rate is expected to continue to be supportive of the collateral property’s performance. Based on MARC’s analysis of the collateral property’s performance, Inverfin’s post-dividend finance service cover ratio is expected to average 7.0 times with a minimum of 3.9 times until 2018 and the notes are expected to demonstrate a moderately high resilience to rental rate and occupancy stresses.

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