Segi Astana Sdn Bhd - 2013

MARC has affirmed its rating of AAA(fg) on Segi Astana Sdn Bhd's (Segi Astana) RM470.0 million Medium Term Notes (MTN) programme with a stable outlook. The rating is underpinned by the unconditional and irrevocable financial insurer guarantee provided by Danajamin Nasional Berhad (Danajamin). MARC currently rates Danajamin’s financial strength as AAA/Stable on the basis of its status as a government-sponsored financial guarantee insurer and perceived high support from the government to facilitate greater corporate access to the domestic sukuk and bond markets.

Jointly owned by WCT Land Sdn Bhd (WCTL) (70%) and Malaysian Airports Holdings Berhad (MAHB) (30%), Segi Astana was awarded a 25-year build-operate-transfer concession to finance, develop and operate an integrated complex, now known as gateway@klia2, at Kuala Lumpur International Airport 2 (klia2), the new low-cost carrier terminal (LCCT) in Sepang, Selangor. The concession commenced on August 1, 2011 with an option to extend for another 10 years. Construction on the RM530.3 million integrated complex, which comprises a landside mall with about 370,000 sq ft of nett lettable area, a multi-storey car park facility and a transportation hub, including an Express Rail Link, is fully complete with the Certificate of Practical Completion received at end-July 2013.

MARC notes, however, that the scheduled opening of gateway@klia2 was deferred to May 2, 2014 from April 1, 2013, due to completion delay of the main terminal building of klia2. Both components of the klia2 development are to commence commercial operations concurrently. As a result of the commencement delay, the concession period is expected to be extended by about 396 days. This notwithstanding, the operational delay has led to a setback to project cash inflows to meet financial and operational commitments which include interest payments, operational expenses, building maintenance costs and potential claims from secured tenants. MARC has been informed that Segi Astana will make appropriate claims from MAHB for the costs incurred by the delay.

MARC understands that Segi Astana has not experienced any tenancy cancellations following the one-year deferral of the operations commencement date with gateway@klia2 registering an occupancy rate of 74.5% of total retail space as at end-September 2013. The company expects the occupancy level to reach 85.0% when the landside mall begins operations in May 2014. MARC also notes that the current average rental rate at gateway@klia2 of about RM22.0 psf is significantly higher than the initial project forecast of RM15.0 psf, which somewhat mitigates the impact of the delay on its liquidity position. Nonetheless, the landside mall at gateway@klia2 is expected to face stiff competition from the adjoining 70,000 sq ft of retail area and from the airside mall, both of which will be operated by MAHB.

The delayed opening and the additional costs incurred for the facility upgrades, which include a variation order of about RM32.0 million to be borne by Segi Astana, has weakened the company’s ability to meet its financial obligations and maintain adequate headroom on its debt service cover. The potential shortfall of RM52.7 million arising from delay is expected to be addressed through a drawdown of RM30.0 million MTNs, an additional borrowing of RM15.0 million permitted under the rated programme and payment deferment on the variation order to its sister construction company, WCT Construction Sdn Bhd, the contractor for the project. Segi Astana is making a liquidated ascertained damages (LAD) claim to MAHB for all additional costs incurred during the delay period, although the actual amount and mode of payment have yet to be finalised. MARC observes that given that the MTN programme reduction schedule of RM30.0 million begins only in January 2017, Segi Astana does not face any immediate liquidity pressure.

Noteholders are insulated from the concession's construction and operation phase risks by the   unconditional and irrevocable guarantee provided by Danajamin.

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