Tuesday, October 26, 2010

MARC affirms ratings on Petronas Twin Towers owner, Midciti Resources' RM2.9b debt notes

KUALA LUMPUR: Malaysian Rating Corporation Bhd (MARC) has affirmed the AAA ID rating on Midciti Resources Sdn Bhd???s (Midciti) 8- to 12-year Secured Bai Al-Dayn Bonds (serial bonds) and the AAA(s) rating on its 13-year bonds (conventional bonds). The ratings carry a stable outlook.

Midciti is the owner of the Petronas Twin Towers which houses the corporate headquarters of Petroliam Nasional Bhd. The affirmed ratings primarily reflected the creditworthiness of Petronas, the head lessee of the Petronas Twin Towers.

Below is the statement issued by MARC on Tuesday, Oct 26

Petronas has a public information corporate credit rating of AAA from MARC, reflecting the national oil company???s strong credit metrics and favourable business profile which are underscored by its strategic role in the Malaysian economy. The rating actions affect remaining outstanding serial bonds of RM387 million and RM600 million of conventional bonds.

Under the head lease agreement between Petronas and Midciti, the former is responsible for absolutely all risks and expenses associated with occupying the leased property, including occupancy risk. Midciti and its bondholders are not exposed to the credit risk of sub-lessees.

Full and timely payment of debt service on the serial bonds is wholly dependent on the head lessee???s payment of rent. The conventional bonds do not fully amortise during the term of the lease, however refinancing risk of the bonds in November 2012 has been addressed by a put option provided by Petronas to bondholders to sell their bonds to PETRONAS at face value on their stated maturity date.

Petronas will also cover coupon payments on the conventional bonds after the expiry of the head lease agreement on September 30, 2012 up to their November 2012 maturity.

The ratings of both issues, therefore, reflect MARC???s assessment that they can be equated from a credit standpoint with an unconditional, unsubordinated, and general obligation of Petronas.

For financial year ending March 2010 (FY2010), Midciti registered a rental revenue income of RM335.8 million, unchanged from the last two years. Profit before tax, however, rose significantly by 37.8% to RM647.3 million (FY2009: RM469.8 million) due to an appreciation in fair value of the towers to RM400.0 million (FY2009:RM233.4 million).

Midciti???s debt service capacity continues to remain strong, underpinned by strong net cash flow from operations (CFO) which stood at RM285.8 million in FY2010 (FY2009: RM264.2 million), while CFO interest coverage and debt service coverage ratio were at 3.0 times (FY2009: 2.4 times) and 1.6 times (FY2009: 1.6 times) respectively.

Midciti???s debt-to-equity ratio improved marginally to 0.24 times in FY2010 from 0.32 times in FY2009, and is expected to come down further with the repayment of RM188 million of the outstanding serial bond in November 2010.

The stable outlook on Midciti???s bond ratings reflects Petronas??? commitment to Midciti as the head lessee, majority shareholder and put option provider for the conventional bonds.


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