CREDIT ANALYSIS REPORT

CENTRAL IMPRESSION SDN BHD - 2021

Report ID 60538900357 Popularity 53 views 4 downloads 
Report Date Oct 2021 Product  
Company / Issuer Central Impression Sdn Bhd Sector Property
Price (RM)
Normal: RM500.00        
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Rationale
MARC has affirmed its AA- rating on Central Impression Sdn Bhd’s (CISB) outstanding RM75 million Fixed Rate Serial Bonds. The rating outlook remains negative

Rationale     
The negative outlook is premised on our concern over the CISB’s liquidity position if an ongoing plan to clear its tax arrears of RM10 million is not realised. Under the plan, CISB will issue new shares to its shareholders that will raise proceeds of RM10 million to fully settle the arrears. The share issuance exercise is expected to be completed by end-2021. In the meantime, under an irrevocable letter of undertaking to CISB, shareholders are making a RM300,000 monthly instalment payment on the tax arrears. The monthly instalment has been agreed upon with the tax authority. 

The affirmed rating is driven by the credit strength of AEON Co (M) Berhad (AEON), a 51.7%-owned subsidiary of Japan-based AEON Co Ltd and which has an established track record in the Malaysian retail industry with 34 departmental stores, 28 of which are located in its self-managed malls. AEON is the principal lessee of CISB’s AEON Klebang shopping mall (AEON Klebang) in Ipoh under a 10-year (plus 5) lease expiring in October 2025. The terms of the lease agreement eliminate CISB’s exposure to occupancy risk as well as sublease termination and sublease credit risks.

CISB has continued to receive lease payments of RM18.3 million p.a. The ongoing pandemic and the various movement restrictions have not disrupted the lease payment stream as at date. As at end-May 2021, the balance in its designated accounts stood at RM19.2 million, which is sufficient to meet its upcoming financial obligations of RM16.5 million in November 2021. The bondholders have the first legal charge on AEON Klebang, which is valued at RM300 million against outstanding bonds of RM75 million as at June 15, 2021.

CISB is expected to exercise discipline in its dividend payments and repayment of shareholders’ advances. MARC takes comfort from the restriction of distributions by CISB if the post-distribution debt service cover ratio (DSCR) falls below 1.75x. Sycal Berhad, the main contractor of the AEON Klebang development, has provided a corporate guarantee to AEON to undertake refurbishments in 2020 and 2025. While AEON has not made any request in 2020, in the event Sycal is unable to fulfil the obligation, CISB would need to undertake them. This cost, however, is not expected to be material.

Rating outlook     
The negative outlook considers the pending completion of the share issuance exercise in which the proceeds of RM10 million to be received by CISB by end-2021 will be utilised to settle the outstanding tax arrears amounting to RM10 million. The outlook would be revised back to stable if CISB resolves the tax arrears provided there are no other material issues affecting its financial position.

Rating trajectory

Upside scenario     
No upside to the rating is envisaged in the near term. The impact from the pandemic has weighed heavily on the retail industry and therefore would limit any upside to AEON’s operational performance.

Downside scenario     
The rating would be lowered if the shareholders fail to provide timely financial support to the company in the near term, which would lead to a breach of CISB’s covenanted DSCR in FY2023.

Key strength
  • Fixed lease payments from creditworthy principal lessee, AEON Co (M) Berhad  
Key risk
  • Potential impact on liquidity if CISB fails to address tax liability by shareholders


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