Segi Astana Sdn Bhd - 2014

MARC has affirmed its rating of AAA(fg) on special purpose vehicle Segi Astana Sdn Bhd's (Segi Astana) RM470.0 million Medium-Term Notes (MTN) programme with a stable outlook. The rating reflects the credit strength of the unconditional and irrevocable financial guarantee provided by Danajamin Nasional Berhad which carries MARC’s financial strength rating of AAA/Stable.

Segi Astana’s sole development project, comprising a landside mall with a net lettable area of approximately 360,000 sq ft, a multi-storey car park and a transportation hub, at Kuala Lumpur International Airport 2 (klia2) commenced operations on May 2, 2014, following a 13-month delay from the initial scheduled opening on April 1, 2013. The development project, an integrated complex known as gateway@klia2, was undertaken through a build, operate and transfer concession. MARC notes that the delay to commence operations of gateway@klia2 had resulted in Segi Astana incurring finance and operational costs of RM42.8 million without revenue generation. The costs were mainly funded by a drawdown of RM30.0 million MTNs and shareholders’ advances. MARC understands that as a result of the delay, Segi Astana’s 25-year concession, which commenced on August 1, 2011 with an option for a 10-year extension, has now been extended by 396 days. 

As at end-August 2014, Segi Astana’s landside mall registered an occupancy rate of 78.9%, lower than the company’s projections of 85%, although the impact from the lower occupancy on project cash flows was partly offset by the higher-than-projected average rental rates of RM23.30 psf. MARC views the growth prospects for occupancy levels and rental rates at gateway@klia2 to be weighed down by strong competition from the adjoining 70,000 sq ft of retail area and airside mall as well as the potential development of another retail mall in the vicinity. In addition, the sparsely populated surrounding areas of klia2 do not provide a good retail catchment area. However, Segi Astana has benefitted from a higher-than-forecast number of parking users and longer average parking hours for its 5,690 car park bays at gateway@klia2.

For the nine months ended September 30, 2014 (9MFY2014), rental income and car park fees contributed 62.6% and 30.4% of Segi Astana’s total revenue of RM48.5 million respectively. The company continued to register a post-tax loss of RM6.0 million (FY2013: post-tax loss of RM6.0 million) after deducting interest costs and amortisation expenses. Based on MARC’s sensitivity analysis on cash flow projections, if the occupancy rate falls from the current level and rental rate increases are lower than the 10% projected every three years under the company’s base case assumptions, Segi Astana’s cash flow metrics would come under pressure. As at end-9MFY2014, cash and bank balances stood at RM42.8 million with part of it held in a debt service reserve account for MTN interest payments. MARC also draws some comfort from the financial support provided by one of the project sponsors, WCT Land Sdn Bhd (WCTL), which owns a 70% stake in Segi Astana, via shareholders’ advances of RM55.2 million as at end-9MFY2014. WCTL is a wholly-owned subsidiary of WCT Holdings Berhad, which carries a MARC rating of AA-/stable. The remaining 30% stake in Segi Astana is held by Malaysian Airports Holdings Berhad (MAHB), a government-linked corporation.  

MARC notes that Segi Astana does not face any immediate liquidity pressure to meet its financial obligations under the outstanding RM470.0 million of the MTN programme as the first principal redemption of RM30.0 million is due only on December 30, 2016.  In any event, noteholders are insulated from Segi Astana’s operation phase risks by the unconditional and irrevocable guarantee provided by Danajamin.

Major Rating Factors

Strengths
• Strong creditworthiness of project sponsors.

Challenges/Risks
• Securing high occupancy rates for the retail mall; and
• Weak retail catchment area.