KUALA LUMPUR (March 21): RAM Rating Services Bhd has assigned a preliminary short-term enhanced rating of P1(s) to SunREIT Capital Bhd’s proposed up to RM1.6 billion debt notes.
The ratings agency said the debt notes to be issued by SunREIT (formerly known as Noble Pioneer Sdn Bhd) were nominal value commercial papers (CP) programme.
“The suffix “s” denotes the rating enhancement accredited after due consideration on the collateral for the proposed CP programme,” it said.
Below is the text of the statement issued by RAM Ratings
SunREIT is a special-purpose vehicle set up by Sunway Real Estate Investment Trust (Sunway REIT) as a funding conduit - to undertake a fund-raising exercise on a secured basis.
As such, the stand-alone rating of the proposed CP programme reflects the credit profile of Sunway REIT.
The rating enhancement for the proposed CP Programme is premised on RAM Ratings’ methodology on well-secured debts.
The enhanced P1(s) rating does not solely reflect Sunway REIT’s default probability on its financial obligations, but also considers the strong likelihood of recovery of its principal through the crystallisation of the proposed CP Programme’s securities within a reasonable period after default.
Excluding its Penang PROPERTIES [], Sunway REIT’s remaining portfolio (“the Security Portfolio”) valued at RM4.1 billion has been pledged as security for the proposed CP Programme.
Based on this latest valuation, the CP holders will have asset-to-debt cover of 2.55 times.
However, this ratio could decline to approximately 2.22 times as this transaction permits additional security sharing on a pari passu basis.
We also take into consideration the full underwriting commitment for the proposed CP Programme, which moderates the rollover risk of the CPs.
The amount underwritten by PUBLIC BANK BHD [] must always be equal to the applicable limit of the CP Programme, as long as the minimum rating is P3(s).
Public Bank, however, reserves the right to sell down all or part of its commitment. In such instances, the new underwriter will honour the same terms and conditions of Public Bank’s underwriting commitment.
Listed on the Main Market of Bursa Malaysia, Sunway REIT is currently the largest Malaysian real-estate investment trust in terms of assets (RM4.4 billion as of end-June 2011).
Its credit profile is supported by the above-average quality of its portfolio. Besides the newly acquired Sunway Putra Place, the portfolio also contains seasoned investment properties with above-average profiles and strong operating track records.
Led by its crown jewel, Sunway Pyramid, 74% of the portfolio’s value centres on Bandar Sunway.
“These assets have established a symbiotic relationship by leveraging on each other’s strengths to draw crowds from the major surrounding catchment areas,” observes Shahina Azura Halip, RAM Ratings’ Head of Real Estate & CONSTRUCTION [] Ratings.
Sunway REIT also derives diversification through its various industry exposures, i.e. retail (66% of its portfolio value), hospitality (24%) and office buildings (10%).
Its tenant mix is also well spread out across many industries, thus minimising its dependence on any particular one. The top 5 tenants account for only about 16% of the REIT’s revenue.
Sunway REIT also has a close relationship with its active Sponsor, Sunway Berhad – an established developer, owner and manager of investment properties in the office, retail, hospitality, leisure, education and healthcare segments.
Offsetting the strengths above is the REIT’s substantial dependence on the performance of Sunway Pyramid (which accounted for 53% of its net property income in 1H FYE June 2012).
In addition, Sunway REIT’s aggressive expansion plans to double its asset base in the next 5-7 years, from RM3.7 billion at its initial public offering to RM7 billion, will add pressure to its balance sheet.
Gearing ratio and leverage ratio (debt–to–asset) will be about 0.72 times and 0.42 times respectively.
As it stands, Sunway REIT is substantially reliant on floating-rate debts, with about 55% of the REIT’s debts comprising variable-rate borrowings as at February 2012. Apart from that, Sunway REIT is exposed to the vagaries of the retail, hospitality and office sectors.
We highlight that the proposed CP Programme allows other new financiers to share the Security Portfolio on a pari passu or subordinated basis.
While the legal facets of the structure will be addressed via the terms of the transaction documents, particularly the Security Agency and Sharing Agreement that details the security rankings and rights of all the lenders over the same security, the smooth execution of the agreement under a distressed scenario has yet to be proven.
Nonetheless, the REIT’s 2 unencumbered investment properties (valued at RM306 million as of June 2011) provide another fund-raising avenue.
The ratings agency said the debt notes to be issued by SunREIT (formerly known as Noble Pioneer Sdn Bhd) were nominal value commercial papers (CP) programme.
“The suffix “s” denotes the rating enhancement accredited after due consideration on the collateral for the proposed CP programme,” it said.
Below is the text of the statement issued by RAM Ratings
SunREIT is a special-purpose vehicle set up by Sunway Real Estate Investment Trust (Sunway REIT) as a funding conduit - to undertake a fund-raising exercise on a secured basis.
As such, the stand-alone rating of the proposed CP programme reflects the credit profile of Sunway REIT.
The rating enhancement for the proposed CP Programme is premised on RAM Ratings’ methodology on well-secured debts.
The enhanced P1(s) rating does not solely reflect Sunway REIT’s default probability on its financial obligations, but also considers the strong likelihood of recovery of its principal through the crystallisation of the proposed CP Programme’s securities within a reasonable period after default.
Excluding its Penang PROPERTIES [], Sunway REIT’s remaining portfolio (“the Security Portfolio”) valued at RM4.1 billion has been pledged as security for the proposed CP Programme.
Based on this latest valuation, the CP holders will have asset-to-debt cover of 2.55 times.
However, this ratio could decline to approximately 2.22 times as this transaction permits additional security sharing on a pari passu basis.
We also take into consideration the full underwriting commitment for the proposed CP Programme, which moderates the rollover risk of the CPs.
The amount underwritten by PUBLIC BANK BHD [] must always be equal to the applicable limit of the CP Programme, as long as the minimum rating is P3(s).
Public Bank, however, reserves the right to sell down all or part of its commitment. In such instances, the new underwriter will honour the same terms and conditions of Public Bank’s underwriting commitment.
Listed on the Main Market of Bursa Malaysia, Sunway REIT is currently the largest Malaysian real-estate investment trust in terms of assets (RM4.4 billion as of end-June 2011).
Its credit profile is supported by the above-average quality of its portfolio. Besides the newly acquired Sunway Putra Place, the portfolio also contains seasoned investment properties with above-average profiles and strong operating track records.
Led by its crown jewel, Sunway Pyramid, 74% of the portfolio’s value centres on Bandar Sunway.
“These assets have established a symbiotic relationship by leveraging on each other’s strengths to draw crowds from the major surrounding catchment areas,” observes Shahina Azura Halip, RAM Ratings’ Head of Real Estate & CONSTRUCTION [] Ratings.
Sunway REIT also derives diversification through its various industry exposures, i.e. retail (66% of its portfolio value), hospitality (24%) and office buildings (10%).
Its tenant mix is also well spread out across many industries, thus minimising its dependence on any particular one. The top 5 tenants account for only about 16% of the REIT’s revenue.
Sunway REIT also has a close relationship with its active Sponsor, Sunway Berhad – an established developer, owner and manager of investment properties in the office, retail, hospitality, leisure, education and healthcare segments.
Offsetting the strengths above is the REIT’s substantial dependence on the performance of Sunway Pyramid (which accounted for 53% of its net property income in 1H FYE June 2012).
In addition, Sunway REIT’s aggressive expansion plans to double its asset base in the next 5-7 years, from RM3.7 billion at its initial public offering to RM7 billion, will add pressure to its balance sheet.
Gearing ratio and leverage ratio (debt–to–asset) will be about 0.72 times and 0.42 times respectively.
As it stands, Sunway REIT is substantially reliant on floating-rate debts, with about 55% of the REIT’s debts comprising variable-rate borrowings as at February 2012. Apart from that, Sunway REIT is exposed to the vagaries of the retail, hospitality and office sectors.
We highlight that the proposed CP Programme allows other new financiers to share the Security Portfolio on a pari passu or subordinated basis.
While the legal facets of the structure will be addressed via the terms of the transaction documents, particularly the Security Agency and Sharing Agreement that details the security rankings and rights of all the lenders over the same security, the smooth execution of the agreement under a distressed scenario has yet to be proven.
Nonetheless, the REIT’s 2 unencumbered investment properties (valued at RM306 million as of June 2011) provide another fund-raising avenue.
