MARC Ratings has affirmed its AA- rating on Central Impression Sdn Bhd’s (CISB) outstanding RM45.0 million Fixed Rate Serial Bonds. The rating outlook is stable.
The rating affirmation reflects the credit strength of AEON Co (M) Berhad (AEON) which, as the principal lessee of CISB’s AEON Mall Ipoh Klebang, makes fixed lease payments that are deemed sufficient to meet financial obligations on the bond. The rating agency notes that the 10-year lease agreement between CISB and AEON expires in October 2025 but with an option to extend for another five years. The fixed lease payment arrangement eliminates CISB’s exposure to occupancy risk as well as sublease termination and sublease credit risks. The mall has 506,000 sq ft of net lettable area.
These strengths notwithstanding, MARC Ratings remains concerned on CISB’s tax arrears and draws some comfort that CISB is resolving the tax obligations through instalment arrangements with the tax authority as has been done in the past. Additionally, CISB’s shareholders’ irrevocable commitment to provide financial support for the tax payments and meet other operational shortfalls in the company’s obligations alleviates the rating agency’s concern.
CISB has continued to receive lease payments of RM18.3 million p.a. from AEON, as per the agreement. Designated account balances of RM20.6 million as at end-June 2023 are sufficient to meet upcoming bond and coupon payments totalling RM16.2 million due on November 21, 2023. AEON’s credit profile is reflected by its 51.7% ownership by Japan-based AEON Co Ltd and its demonstrated track record in the domestic retail sector since 1984. AEON operates 35 departmental stores in Malaysia, 28 of which are self-managed malls as at end-March 2023.
The bond’s current outstanding is RM45 million with the last repayment of RM15 million scheduled in November 2025, a month after the expiry of the tenancy provided there is no extension. In the unlikely scenario of tenancy non-extension, the rating agency draws comfort from the build-up of sufficient balances in the designated accounts to meet the final obligation at the time. MARC Ratings also takes comfort from the restriction of distributions if the post-distribution debt service cover ratio (DSCR) falls below 1.75x. Based on the unaudited financial statement for the financial year ended March 31, 2023 (FY2023), CISB’s DSCR of around 2.0x remained above the covenanted DSCR of 1.5x.