MARC Ratings has affirmed its ratings on Trusmadi Capital Sdn Bhd’s Issue 1 RM235 million Class A, RM40 million Class B and RM25 million Class C Medium-Term Notes (MTN) at AAA, AA, and A. The rating agency has also affirmed its MARC-1 rating on Trusmadi Capital’s Issue 1 RM300 million Commercial Papers (CP). The MTN and CP are subject to a combined issuance limit of RM300 million. The ratings outlook is stable. The current amounts outstanding are RM20 million Class A MTN and RM240 million CP.
The rating affirmations on the MTN classes and CP reflect MARC Ratings’ expectations that Trusmadi Capital’s loan-to-value (LTV) ratios will remain consistent with the LTV benchmarks at the respective rating levels. The LTV ratios are derived based on MARC Ratings’ income capitalisation approach using a stabilised net operating income (NOI). In 2023, the NOI for the collateral building Menara Shell increased to RM48.4 million from RM47.1 million in the previous year, mainly due to a pre-agreed step-up in the rental rate for the anchor tenant.
The rating agency notes that the NOI could reduce to around RM39.0 million in 2024 from the exit of Menara Shell’s second-largest tenant (accounting for 17.6% of net lettable area (NLA) of 557,458 sq ft) following the expiry of its tenancy in 2Q2024, and assuming no replacement tenant is found during the year. Meanwhile, Sentral REIT Management Sdn Bhd has commenced marketing efforts to secure potential replacement tenants. Nonetheless, MARC Ratings views that given the excess office space supply in Kuala Lumpur, maintaining high occupancy levels and rental rates would be challenging.
Based on the rating agency’s stress scenario, the LTV ratios would be breached if the average NOI declines below RM30.5 million with an occupancy rate of 70% and average rental rate of RM6.46 psf (2023: 98%; RM8.30 psf). Given that the projected occupancy rate of Menara Shell as at end-2024 will be around 80%, this reflects a modest buffer assuming that no additional issuances are made under the programme. The anchor tenant, Shell Malaysia Trading Sdn Bhd (Shell), a wholly-owned subsidiary of Shell plc, occupying a substantial 54.7% of total NLA through end-2028, provides a large degree of occupancy stability over the long term. In case of early termination, there are also provisions for rental claims over the remaining unexpired term of the leases.
Under the income capitalisation approach, the value of Menara Shell is estimated at RM586.7 million, 12.8% lower than its market value of RM672.5 million as verified by an independent valuer as of December 31, 2023. The CP’s exposure to rollover risk is mitigated by the availability of investor commitment to subscribe to the CP throughout its expected tenure. Meanwhile, the refinancing risk of the MTNs is buffered by their two-year tail between the expected and legal maturities.