Thursday, Apr 18, 2002
Malaysian Rating Corporation Berhad (MARC) has reaffirmed the ratings of Midciti Resources Sdn Bhd’s (“Midciti Resources”) 7-year Secured Bai Al-Dayn Commercial Paper/Medium Term Notes Financing Programme with nominal value of up to RM1,000 million at MARC-1ID /AAAID, 8 to 12-year Secured Bai Al-Dayn Bonds with a nominal value of up to RM1,605 million at AAAID and the 13-year Bonds with a nominal value of up to RM1,315 million at AAA.
The ratings reflect the credit strength of PETRONAS, the principal tenant of the PETRONAS Twin Towers, which bears the rental payments for both the towers. The rental stream forms the primary source of repayment of the debt securities. PETRONAS has also granted a put option to the holders of the 13-year conventional bonds to redeem the principal portion of the bonds and to honour the coupon payments which fall due after the expiry of the lease. PETRONAS’ superior credit strength is drawn from its robust cash flow generation which is supported by a favourable production profile, strong profitability measures, sound capital structure, significant role in the Malaysian economy and full ownership by the Government of Malaysia.
Midciti Resources was established to own and develop the PETRONAS Twin Towers, which comprises two 88-storey towers costing RM2.82 billion. PETRONAS is the major shareholder with an effective 73.8% shareholding in the company. Under a 15-year irrevocable Head of Lease Agreement on a triple net basis between Midciti and PETRONAS, PETRONAS is the lessee for both the Towers on a shell and core basis. PETRONAS, therefore, directly bears the fit out, operating and maintenance costs. The arrangement also eliminates the risks of vacancy and rent defaults in respect of the Towers. A step-up rental provision has also been included in the Agreement, ensuring increasing rental stream over the life of the lease. The company is, therefore, not subject to the risk of rental decline due to market forces.
The risk of adverse movements in the cost of funds under the commercial paper (CP) programme is mitigated by the availability of a facility to convert the CP into a medium term note and vice versa. The 13-year bonds carry a refinancing risk associated with the lump sum payment of principal after the expiry of the lease. This risk is eliminated by the put option that was granted by PETRONAS to the bondholders.
Midciti’s strong debt service capacity is underpinned by the stability and predictability of its cash flow. The primary source of income is rental while the major outflows comprise payments under the Islamic debt securities and conventional bonds. Dividends can only be declared under strict conditions including a minimum credit balance in the sinking fund of an aggregate amount equal to the principal due and profit/coupon payable for the next twelve months. As at 31 December 2001, the Sinking Fund balance was RM204.7 million, which comfortably covers the next profit/coupon payments due in May 2002.
The ratings reflect the credit strength of PETRONAS, the principal tenant of the PETRONAS Twin Towers, which bears the rental payments for both the towers. The rental stream forms the primary source of repayment of the debt securities. PETRONAS has also granted a put option to the holders of the 13-year conventional bonds to redeem the principal portion of the bonds and to honour the coupon payments which fall due after the expiry of the lease. PETRONAS’ superior credit strength is drawn from its robust cash flow generation which is supported by a favourable production profile, strong profitability measures, sound capital structure, significant role in the Malaysian economy and full ownership by the Government of Malaysia.
Midciti Resources was established to own and develop the PETRONAS Twin Towers, which comprises two 88-storey towers costing RM2.82 billion. PETRONAS is the major shareholder with an effective 73.8% shareholding in the company. Under a 15-year irrevocable Head of Lease Agreement on a triple net basis between Midciti and PETRONAS, PETRONAS is the lessee for both the Towers on a shell and core basis. PETRONAS, therefore, directly bears the fit out, operating and maintenance costs. The arrangement also eliminates the risks of vacancy and rent defaults in respect of the Towers. A step-up rental provision has also been included in the Agreement, ensuring increasing rental stream over the life of the lease. The company is, therefore, not subject to the risk of rental decline due to market forces.
The risk of adverse movements in the cost of funds under the commercial paper (CP) programme is mitigated by the availability of a facility to convert the CP into a medium term note and vice versa. The 13-year bonds carry a refinancing risk associated with the lump sum payment of principal after the expiry of the lease. This risk is eliminated by the put option that was granted by PETRONAS to the bondholders.
Midciti’s strong debt service capacity is underpinned by the stability and predictability of its cash flow. The primary source of income is rental while the major outflows comprise payments under the Islamic debt securities and conventional bonds. Dividends can only be declared under strict conditions including a minimum credit balance in the sinking fund of an aggregate amount equal to the principal due and profit/coupon payable for the next twelve months. As at 31 December 2001, the Sinking Fund balance was RM204.7 million, which comfortably covers the next profit/coupon payments due in May 2002.