MARC has downgraded its rating on Segi Astana Sdn Bhd’s RM415.0 million ASEAN Green Medium-Term Notes (MTN) facility to A+ from AA-. The rating outlook is maintained at negative. The rating benefits from a single notch uplift based on the undertaking from parent WCT Holdings Berhad (WCT) (AA-/Stable) to provide liquidity support.
Segi Astana’s weakened credit profile reflects the impact of a lower occupancy rate at gateway@klia2 mall and retail closures due to pandemic-induced shutdowns. gateway@klia2 mall continued to record a declining occupancy rate to 68.8% at end-June 2021 from 83.3% at end-2020. Collections from car park operations, which formed a sizeable portion of its total revenue, have also been severely impacted by the closures. The negative outlook incorporates the impact on the company’s cash flow and the uncertain pace of recovery of air travel to support passenger footfall growth in the near term.
Segi Astana’s weakened performance is mitigated by its moderate liquidity position that is sufficient to meet its near-term financial obligations. Cash balance stood at RM41.3 million at end-June 2021 and has been earmarked for Segi Astana’s next interest and notes maturity of RM39 million in January 2022. We also note the support from parent WCT Holdings through an issuance of redeemable preference shares (RPS) of RM50 million have shored up Segi Astana’s liquidity position.
We understand that the occupancy rate decline at gateway@klia2 mall has bottomed out given the renewed interest in retail space as air travel volume improves and concerns on the pandemic ease. We view the gradual reopening of the economy and relaxation of travel restrictions could improve occupancy rate at the mall; the company expects the occupancy rate to reach about 80% by end-2022.
We note that in 1H2021, Segi Astana collected a modest RM17.6 million (1H2020: RM38.9 million) from retail operation and car park with the decline reflecting the significant fall in car park collection. In our sensitised cash flow projections, assuming a modest recovery in occupancy level and car park usage (on improved passenger travel) in 2H2022, the company would be able to meet its financial obligations although it would breach its 1.25x debt service coverage ratio requirement in the absence of liquidity support from its parent. In our stressed scenario, assuming a significant recovery only from 2024 onwards (closer to 2019’s performance), the company would need to rely on the liquidity support to meet its longer-term financial obligations. The cash flow could be also affected by the settlement of an arbitration award amounting to approximately RM74 million.
We draw comfort from the long tail period of Segi Astana’s concession post-2028 programme maturity which provides room for refinancing exercise in the event cash flows do not recover to projected levels. The rating outlook could be revised back to stable if there is a steady and meaningful improvement in occupancy rate and rental as well as carpark collections over the next 12-18 months.