MARC has affirmed the ratings of MARC-1/AAA and MARC-1/AA on the RM125.0 million Senior Class A Notes and RM50.0 million Senior Class B Notes (Senior Notes) of the special purpose vehicle, Mutual Streams Sdn Bhd’s (MSSB) RM650 million Commercial Papers/Medium Term Notes (CP/MTN) programme. The ratings carry a stable outlook. The affirmation and stable outlook reflect the performance of the collateral property which has been in line with MARC’s expectations, underpinned by a well diversified tenant mix and a high occupancy rate. The rating also incorporates irrevocable and unconditional put and call options with CapitaLand Retail Limited (CRTL); and strong cashflow coverages. These strengths are moderated by the current challenging economic conditions which may impact the rental rates and occupancy levels of Mines Shopping Fair.

MSSB, a special purpose vehicle, purchased Mines Shopping Fair from Mines Shopping Fair Sdn Bhd, an indirect wholly-owned subsidiary of Country Heights Holdings Bhd, for a total consideration of RM432.0 million. The sale of Mines Shopping Fair was structured as true-sale for legal purposes with all existing rental (tenancy) agreements being novated to MSSB. The purchase was funded from the proceeds of RM175.0 million Senior Notes and RM260.0 million Subordinated Class C Notes (unrated) (collectively referred to as Notes) issued at closing. Monthly rental payments that are deposited directly into Mines Shopping Fair’ revenue account form the source of coupon payments and senior expenses for the Notes. The transaction has been structured on an interest-only basis, with no amortisation of principal prior to maturity date and incorporates a put and two call options exercisable by the trustee and CRTL respectively, to address the redemption of Senior Notes at maturity. 

Mines Shopping Fair with a net lettable area of 633,426 sq. ft. is located in Mines Resort City in Seri Kembangan, Selangor.  As at September 2008, the commited occupancy rate of the shopping complex stood at a respectable 91% with top 10 tenants contributing approximately 22.0% of total monthly rental thus mitigating tenant concentration risk. Net operating income (NOI) has been trending upwards over the last five years and MARC expects revenue to remain stable going forward, supported by the maximisation of its net lettable area via the asset enhancement initiatives (AEI) works estimated to be completed by end-2009. The AEI include the construction of an extension block, creation of themed kiosk hubs, escalator works and reconfiguration of other units aimed at improving accessibility, efficiency and tenant mix.

The transaction incorporates a Senior CPs/MTNs Put Option in favour of the trustee and Senior CPs/MTNs Call Option in favour of CRTL (both options being irrevocable and unconditional) to mitigate refinancing and market risk at maturity. Should CRTL decides to exercise its option to acquire ownership of Mines Shopping Fair any time post-issuance, MSSB will be in a position to redeem the outstanding Senior Notes ahead of its scheduled maturity.  MARC views CRTL’s ability to honour a demand for repayment as very strong, based on its 100% ownership by CapitaLand Limited, one of the largest property companies in Asia and listed in Singapore.

For the period under review, January 2008 to September 2008, Mines Shopping Fair registered  an unaudited revenue and net operating income of RM31.0 million and RM19.4 million respectively, in line with its initial projections. MARC applied LTVs of 43.3% and 60.1% to size the ‘AAA’ Class A Notes and ‘AA’ Class B Notes respectively.  Based on information provided by the servicer, Mines Shopping Fair’ estimated debt service coverage ratios (DSCRs) for the period under review were 5.1x and 3.6x for Class A and Class B Notes respectively, comfortably higher than the minimum DSCR requirement for their rating levels of 2.2x and 1.9x. Based on MARC’s stress test, it is noted that the cash flow is able to withstand a 40% reduction in rental income before breaching the minimum DSCR requirements.

Contacts:
Azlina Mohamed Noor Beg, 03-2090 2254/ azlina@marc.com.my;
Anthony Eng, 03-2090 2255/ anthony@marc.com.my