MARC has affirmed its AA- rating on Segi Astana Sdn Bhd’s RM415.0 million ASEAN Green Medium-Term Notes facility (MTN facility). The rating outlook, however, has been revised to negative from stable. The current outstanding under the rated facility is RM365 million.
The outlook revision reflects MARC’s concern that the sharp decline in passenger traffic volume at Kuala Lumpur International Airport 2 (klia2) due to the COVID-19 pandemic would impact the business and financial performance of Segi Astana’s gateway@klia2 mall. The passenger traffic volume is directly related to daily aircraft movements at klia2 which has declined to about 30 currently from about 120 earlier in May, due to stricter travel restrictions and border closures. The decline has led to a substantial decrease in footfall, prompting Segi Astana to offer up to 50% rental rebates to its tenants trading non-essential products and services while car park fees, a source of steady income, have also fallen sharply.
MARC will continue to monitor the situation, taking into consideration the severity of the crisis in the airline industry when assessing the impact on Segi Astana’s credit profile. Segi Astana’s standalone rating will be lowered if rental rebates and the decline in occupancy levels over a prolonged period leads to a reduced cash buffer in its debt repayment capacity; alternatively the rating outlook would be revised to stable if the company shows sufficient resilience over the duration of the crisis.
Segi Astana’s current high occupancy rate with headroom for some decline, healthy liquidity position vis-à-vis financial obligations and the less onerous amortising structure which incorporates a sizeable payment only at the end of the sukuk tenure in 2028 are key factors in the rating affirmation. The rating also incorporates a one-notch rating uplift based on a cash deficiency support undertaking from its majority shareholder WCT Holdings Berhad (AA-/Stable) for the final repayment of RM135.0 million.
For 1H2020, the occupancy rate stood at 95.5% of its 383,329 sq ft total net lettable area (end-2019: 95.4%). The occupancy levels have held up thus far partly due to the measures implemented by Segi Astana which include rental rebates for a six-month period. This led to Segi Astana’s total average gross rental rate to decline to RM17.84 psf from RM19.23 psf for 1H2020. During this period, revenue was RM48.0 million (1H2019: RM66.8 million). MARC expects overall revenue for 2020 to decline by 36.4% y-o-y to RM85.3 million on incorporating the 50% rental rebates and lower parking fee collection of between 50% and 90% for the year. In MARC’s sensitivity analysis, the company could withstand a further 16% decline in revenue in 2020 and 2021 before the minimum debt service cover ratio falls to below 1.75x in 2021. This notwithstanding, lease rental non-collection and higher-than-expected tenant attrition rates remain key risks that are dependent on the recovery in the inbound and outbound travel segment.