Under this transaction, a special purpose vehicle, Gandalf Capital Sdn. Bhd. (formerly known as Icon Lagoon Sdn Bhd) (Gandalf Capital) is incorporated to raise up to RM118.0 million of CPs/MTNs comprising of RM87.0 million Class A, RM16.0 million Class B and RM15.0 million Class C CPs/MTNs (Notes), which will be on-lent to its parent, a real estate investment trust, to part finance the acquisition of properties.  The portfolio comprise of four purpose-built office properties located in Cyberjaya, with a total net lettable area of 493,118 square feet (sq. ft.) and total market value of RM280.0 million.  Gandalf Capital will have third party first legal charge on the properties including third party assignment over all rights and benefits under the properties’ insurance policies. 

Rentals from the lessees of the properties will be the main source for coupon payments during the tenure of the transaction.  The Notes have been structured to have bullet maturities with expected and legal maturity at the end of the fifth and seventh year from issuance.  The two year tail period would provide Gandalf Capital sufficient time to either dispose the properties or refinance the Notes to redeem the outstanding Notes prior to the legal maturity.

MARC has assigned ratings of MARC-1/AAA, MARC-1/AA and MARC-1/A to Gandalf Capital’s Class A, Class B and Class C Notes respectively.  The ratings reflect the quality of the properties; quality of its lessees, the lease agreements with initial lease periods of four to seven years and the reasonably low loan-to-value (LTV) ratios applied in sizing the Class A, Class B and Class C Notes.

The Notes are supported by a liquidity reserve equivalent to at least six months coupon on the MTNs in the debt service reserve account.  With discounted cashflow valuation of the properties at RM228.1 million, the Class A, Class B and Class C Notes were sized based on the LTV limits of 38.5%, 45.5% and 52.0% respectively.  Based on the stress tests performed on the properties’ cashflows whereby MARC has assumed non-renewal as well as termination of lease by some of the lessees of the properties under various scenarios, Gandalf Capital is still able to service its debt obligations.

All the properties are 100% occupied with lessees comprising of multinational companies (MNCs). Although the properties have relatively high lessee concentration, this risk is somewhat mitigated given that the lease agreements have initial lease periods from four to seven years with option for renewal thereafter.  In addition, due to the nature of the lessees’ operations and significant costs incurred in the interior finishing as well as furniture and fittings, the likelihood of renewal of the lease is high.  The demand for purpose-built office in Cyberjaya is usually influenced by MNCs which have large IT/communication related operations and the availability of office space in central Kuala Lumpur City Centre and KL Sentral.