MARC has affirmed the rating of AAA on Inverfin Sdn Bhd’s outstanding RM160 million Tranche A notes under its RM200 million Medium-Term Notes (MTN) programme. The maximum limit of the Tranche A notes is RM160 million. The rating outlook has been revised to stable from negative. 

The outlook revision reflects the significant improvement in the occupancy level of the collateral property, Menara Citibank, which has eased the pressure on its net operating income (NOI). At end-December 2019, the building’s occupancy level rose to 86.0% (end-2018: 73.2%) following new tenant Citigroup Transaction Services (M) Sdn Bhd (CTSM) which tenanted 137,868 sq ft or about 18.8% of the building’s net lettable area (NLA) in 4Q2019. Menara Citibank is a Grade A office space located along Jalan Ampang within the Kuala Lumpur city centre, with a NLA of 733,038 sq ft. It has a market value of RM694.0 million as at October 17, 2019, as valued by an independent valuer. 

The rating affirmation reflects the Tranche A notes’ loan-to-value (LTV) ratio that remains within the LTV benchmark that MARC applies for the AAA rating band. Based on the rating agency’s valuation, Menara Citibank is valued at RM381.9 million which provides an LTV ratio of 41.9% against the AAA rating’s LTV benchmark of 43%.

For 2020, NOI is projected to increase to RM32.4 million (2019: RM28.9 million) in tandem with the increase in occupancy levels. Meanwhile, the average rental rate reveals a declining trend, registering RM6.00 psf in 2019 from RM6.02 psf in 2018. MARC also understands that Inverfin is waiving the rental for retail and food court tenants for the duration of the Movement Control Order. As these tenants account for about 2% of rental income, the impact on the overall NOI is minimal.

Menara Citibank is exposed to high tenant concentration risk given that its top five tenants accounted for 73.2% of its NLA in 2019. While Citibank Berhad and its related company CTSM (collectively known as Citigroup) occupied 52.1% of the NLA in 2019, the concentration risk is mitigated by Citibank’s longstanding tenancy track record and part ownership of the building.

At end-2019, its cash level was lower at RM37.7 million (end-2018: RM51.8 million) mainly due to a special dividend of RM28.0 million (2018: RM14.0 million). Under the issue structure, Inverfin is to maintain a minimum security coverage ratio (SCR) of 1.43x and finance service coverage ratio (FSCR) of 1.50x post-dividend payment. As at December 31, 2019, the SCR and FSCR remained strong at 4.34x and 5.54x.

The stable outlook reflects the rating agency’s expectation that Menara Citibank will maintain operational and financial performances that are commensurate with the rating.