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. Concurrently, the rating outlook has been revised to stable from negative.
The rating affirmation is based on the loan-to-value (LTV) ratio of the Tranche A notes of 41.9% which is within the benchmark that MARC Ratings applies for the AAA rating band. The rating agency said the LTV ratio is derived from the valuation of the collateral building Menara Citibank under the agency’s capitalisation approach. The building 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 of December 10, 2021.
The outlook revision to stable reflects the easing of concerns on the occupancy level, as anchor tenant Citibank Group 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, the building is owned by Citibank N.A. and Hap Seng Consolidated Berhad through Inverfin. Due to the downsizing of operations, key tenants have reduced their occupancy levels, leading to a decline to 79.3% of its total net lettable area of 734,005 sq ft as of 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.
For 2021, net operating income 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 based on non-extension of rental rebates going forward and the occupancy level being maintained at the current level. As of December 31, 2021, the security coverage ratio and finance service coverage ratio remained strong at 4.4x and 3.2x.