MARC has affirmed its AA- rating on Central Impression Sdn Bhd’s (CISB) outstanding RM75 million Fixed Rate Serial Bonds.

The rating outlook remains negative and is premised on our concern over the company’s liquidity position if an ongoing plan to clear its tax arrears of RM10 million is not realised. Under the plan, CISB will issue new shares to its shareholders that will raise proceeds of RM10 million to fully settle the arrears. The share issuance exercise is expected to be completed by end-2021. In the meantime, under an irrevocable letter of undertaking to CISB, shareholders are making a RM300,000 monthly instalment payment on the tax arrears that has been agreed with the tax authority. The outlook would be revised to stable if the tax arrears issue is fully resolved.

The affirmed rating is driven by the credit strength of AEON Co (M) Berhad (AEON), a 51.7%-owned subsidiary of Japan-based AEON Co Ltd and which has an established track record in the Malaysian retail industry. AEON is the principal lessee of CISB’s AEON Klebang shopping mall (AEON Klebang) in Ipoh under a 10-year (plus 5) lease expiring in October 2025. The terms of the lease agreement eliminate CISB’s exposure to occupancy risk as well as sublease termination and sublease credit risks. Annual lease payment of RM18.3 million is sufficient to cover the financial obligations under the rated debt.

As at end-May 2021, the balance in its designated account stood at RM19.2 million against upcoming financial obligations of RM16.5 million in November 2021. Following this payment, the outstanding bonds would be RM60 million. We expect CISB to adhere to the post-distribution debt service cover ratio (DSCR) of 1.75x. The bondholders have the first legal charge on AEON Klebang, which is valued at RM300 million by an independent valuer.

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