Posted Date: May 27, 2021

MARC has affirmed its long-term ratings of AAA, AA and A on Kinabalu Capital Sdn Bhd's Issue 2 Medium-Term Notes (MTN) of RM130 million Class A, RM25 million Class B and RM15 million Class C. Concurrently, the rating agency has also affirmed its MARC-1 rating on Kinabalu Capital's Issue 2 of up to RM170 million Commercial Papers (CP). The ratings outlook is stable.

The affirmed ratings reflect the satisfactory LTV ratios of MTN classes within the respective benchmarks for the rating bands. The LTV ratios of the Class A MTN, Class B MTN, Class C MTN and CP are 41.8%, 49.8%, 54.6% and 54.6%, derived from the aggregate value of the collateral properties namely Quill Buildings 1, 2 and 4 in Cyberjaya, and Lotus's Penang (formerly known as Tesco Penang) under MARC's income capitalisation approach. These properties are valued at RM311.2 million under this approach, representing a 21.8% discount of the properties' aggregate fair value of RM398.0 million as ascertained by independent valuers at December 31, 2020.

The properties are single-tenanted by DHL Asia-Pacific Information Services Sdn Bhd (DHL) (Quill Buildings 1 and 4), HSBC Electronic Data Processing (Malaysia) Sdn Bhd (HSBC EDP) (Quill Building 2) in Cyberjaya; and Lotus's Stores (Malaysia) Sdn Bhd (Lotus's Malaysia). Collectively, the properties have a total net lettable area of 650,940 sq ft and are fully occupied (DHL: 29.4%; HSBC EDP: 28.3%; Lotus's Malaysia: 42.3%).

The high tenant concentration risk is moderated by the longstanding occupancy relationship with the tenants. In 2020, DHL renewed the rental lease for another five years expiring in 2025, while Lotus's Malaysia has a long tenancy that expires in August 2032. For HSBC EDP, its tenancy is up for renewal in November 2022. Non-renewal risk is low, largely supported by the fact that the buildings are purpose-built to cater to the tenants' requirements. Early termination risk is mitigated by contractual agreements which allow for claims for rental charges over the remaining unexpired term of the leases in the event of early termination.

For 2020, net operating income was flat at RM29.1 million. No rental waiver was given to tenants during the movement control order period. The debt service cover ratio and security cover ratio stood at 3.66x and 2.34x as at end-2020. The MTN and/or CP issuances have a combined limit of RM170 million under Issue 2 of Kinabalu Capital's RM3.0 billion CP and MTN programme. The outstanding under Issue 2 comprised RM130 million Class A MTN and RM40 million CP as at end-March 2021.


Lim Wooi Loon, +603-2717 2943/ wooiloon@marc.com.my;
Lee Chi Han, / +603-2717 2939/ chihan@marc.com.my.

List related news | List related issues | List related reports