KUALA LUMPUR (Dec 18): Malaysian Rating Corp Bhd (MARC) has assigned a preliminary rating of ‘AA-‘ to Segi Astana Sdn Bhd’s proposed 10-year Asean Green Medium-Term Notes (MTN) facility of up to RM415 million, with a ‘Stable’ outlook.

Concurrently, the ratings agency affirmed its ‘AAA’ rating with a stable outlook on Segi Astana's existing RM470 million MTN programme guaranteed by Danajamin Nasional Bhd, reflecting MARC’s insurer financial strength rating of AAA/Stable on Danajamin.

MARC’s preliminary rating is anchored on Segi Astana’s standalone rating of A+ with a one-notch rating uplift for liquidity support from WCT Holdings (AA-/Stable) for the repayment of RM135 million in the final year of the MTN facility in 2027, the agency said in a note today.

Segi Astana, a 70:30 joint venture between WCT Holdings Bhd (via WCT Land Sdn Bhd) and Malaysia Airports Holdings Bhd (MAHB), operates an integrated complex, gateway@klia2, at klia2, under a 25-year build-operate-transfer concession expiring in 2037.

“Segi Astana’s standalone rating primarily reflects the adequate projected cash flow coverage and the well-structured terms of the proposed issue,” MARC said.

“Moderating the rating are the challenges associated with achieving a higher occupancy level and improving the rental rates of the retail mall, a key component ofgateway@klia2,” the note added.

MARC noted the retail mall currently has net lettable area (NLA) of 355,977 sq ft, which would increase to about 369,261 sq ft in 2018, while the other key component of gateway@klia2, the car park, has 5,690 parking lots.

It also said since commencing operations in May 2014, the retail mall has achieved occupancy levels of between 73.5% and 78.2%, with average gross rental rates falling from RM23.42 psf in 2014 to RM20.32 psf in the first eight months of 2017 (8M17).

“While overall rental revenue from the mall has not met initial projections, better-than-expected income from Segi Astana’s car park (40.1% of total revenue in 8M17) has largely compensated for the shortfall,” MARC said.

Still, the ratings agency opined Segi Astana’s performance will be driven by the number of carriers operating at klia2, given that the catchment at gateway@klia2 comprises mostly passenger traffic, meeters/greeters and the airport’s internal staff.

The agency said although a sharp decline in the number of airlines operating at klia2 would affect footfall at gateway@klia2, MARC regards this risk as low, given the near-full capacity at other airports in the vicinity.

Furthermore, the stable outlook incorporates MARC’s expectations that the major revenue streams and cash flow protection metrics will continue to improve to support Segi Astana’s standalone rating, the agency added.

“The rating could be upgraded if rental revenue and car park income demonstrate significant increases to afford sustainable improvement in its cash flow metrics. Downward rating pressure will develop if a significant decline in rental or car park income affects Segi Astana’s cash flow generation negatively,” MARC said.

“The AA- rating on the proposed MTN facility would revert to Segi Astana’s standalone rating, if WCT Holdings’ rating is downgraded,” the agency added.