RAM Ratings has reaffirmed the respective ratings of Quill Retail Malls’ (QRMSB) RM350 million sukuk murabahah (2017/2024), with a negative outlook. The transaction is secured against Quill City Mall (QCM), a 777,967 sq
ft shopping mall in Malaysia with accessibility from Medan Tuanku
Monorail Station.
Ratings ranged from AA1/Negative to A3/Negative. The negative outlook reflects concerns over potential liquidity stress on the transaction in view of the interruptions to QCM’s turnaround plans, that have now been exacerbated by the Movement Control Order (MCO) to halt the spread of COVID-19. While the RM50 million bank guarantee (BG) facility and six-month coupon reserve can at present adequately support the transaction up to its legal maturity date, weaker-than-expected cashflow and/or collections owing to curtailed businesses during various phases of the MCO, in the absence of further funding injections from the shareholder, will deplete the liquidity facility.
The reaffirmation of the ratings is premised on the available collateral support provided by the property that remains commensurate with the respective ratings.
The property’s occupancy rate is expected to improve to 72% by end-2020, from 61% as at end-December 2019. New anchor tenants include JDX Presto Concept Store, the largest cashless concept store in the ASEAN region – the outlet is JDX Presto’s first online-to-offline store in Malaysia, Orange Esports and UniKL.
RAM Ratings stressed on the market uncertainties and unprecedented events and said hings could change. "Going forward, the property’s performance is envisaged to stay uncertain and volatile in view of the potential variation of newly committed leases, due to the MCO. QCM’s financial performance will also be affected by planned rental relief for tenants in 'non-essential' sectors, although the actual quantum and duration of relief is still in the works," the company said.
"Additionally, 11% of QCM’s total gross rental income is derived from turnover rent, which is vulnerable to weak retail sales post-MCO, given subdued consumer sentiment. Based on our sensitivity analysis, the property’s NPI is likely to fall into negative territory in FY December 2020, assuming two months of rental relief is provided to all tenants, which will necessitate further shareholder support."
NPI stands for net property income.