CREDIT ANALYSIS REPORT

INVERFIN SDN BHD - 2022

Report ID 6053890046801 Popularity 55 views 11 downloads 
Report Date Jun 2022 Product  
Company / Issuer Inverfin Sdn Bhd Sector Property
Price (RM)
Normal: RM500.00        
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Rationale
Rating action     
MARC Ratings has affirmed its rating of AAA on Inverfin Sdn Bhd’s outstanding RM160 million Tranche A notes under the Medium-Term Notes (MTN) programme. The rating outlook has been revised to stable from negative.

Rationale     
The rating affirmation is based on the loan-to-value (LTV) ratio of the Tranche A notes of 41.9% that is within the benchmark that MARC Ratings applies for the AAA rating band. The LTV ratio was derived from the valuation of the collateral building Menara Citibank under the rating agency’s income capitalisation approach. Menara Citibank is valued at RM381.9 million, a 45.4% discount from the market value of RM700.0 million as provided by an independent valuer as at December 10, 2021. 

The outlook revision to stable reflects the easing of concerns on the occupancy level at Menara Citibank as anchor tenant Citibank Group (comprising Citibank Berhad and Citigroup Transaction Services (M) Sdn Bhd) has extended its lease to 2024. Additionally, the potential loss of rental space following the divestment of Citibank Group’s retail banking business is expected to be averted as the acquiree of the retail banking business has plans to continue occupying Menara Citibank. 

Located within the Kuala Lumpur city centre, Menara Citibank is owned by Citibank N.A and Hap Seng Consolidated Berhad through Inverfin. Due to downsizing of operations, key tenants have reduced their occupancy levels, leading to a decline to 79.3% of its total net lettable area (NLA) of 734,005 sq ft as at end-2021 (end-2020: 81.2%). The company is making efforts to secure tenants to improve the occupancy level; a new tenancy for 24,625 sq ft secured in 2021 had mitigated the decline in occupancy level. 

Menara Citibank recorded a lower average rental rate in 2021 of RM5.53 psf (2020: RM5.75 psf). As at end-December 2021, anchor tenant Citibank Group occupies 62.6% of the total occupied NLA and contributes 64.2% of total rental income, which continued to expose Menara Citibank to high tenant concentration risk. 

For 2021, net operating income (NOI) decreased 12.7% y-o-y to RM28.3 million, which is in line with the reduced occupancy in 2021. In our rating case assessment, we have maintained the stabilised NOI of RM28.6 million with assumptions that occupancy levels being maintained at the current level with minimal change.

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, 2021, the SCR and FSCR remained strong at 4.4x and 3.2x.

Rating outlook     
The stable outlook reflects our expectations that the occupancy levels for Menara Citibank will be stabilised with rental income supportive of the LTV bands. 

Rating trajectory     

Downside scenario     
The rating will be lowered if the operating income declines such that the LTV ratio falls below the benchmark for a AAA rating. A sharp decline in occupancy level could lead to a steep downgrade of the MTN rating.

Key strength
Location of building within Kuala Lumpur city centre

Key risks
Occupancy level risk from potential partial decline of anchor tenant’s lettable area
Downside risk on rental rate due to overhang of commercial space in Kuala Lumpur
High tenant concentration risk 


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