Operational and financial covenants are satisfactory, although Fitch notes the exclusion of the bullet repayments
for the purpose of calculating the reported free cash flow (FCF) debt service coverage ratio (DSCR) as well as the possibility of preventing a covenant breach through the availability of disposal proceeds as part of the FCF definition.
Puncak Wangi is highly dependent on the disposal of the Office Tower or refinancing to meet bullet repayments
on the principal of its IMTN and term loan.
The facility's profit rate is set at three-month Eibor plus 2.5 per year without the requirement to repay the loan principal for the first four years, followed by bullet repayments
at the end of year four (15 per cent) and year five (85 per cent).
Risks are exacerbated by the presence of bullet repayments
due to the prospect of companies needing to quickly raise significant amounts of hard currency when access to foreign-currency markets may be limited.
The new loans would be structured with bullet repayments
-- meaning the main amount would not be due until the end of the term -- and interest rates would also be low so as not to burden the group's cashflow with interest payments, the source added.
Previously, the leverage metrics used in the rating sensitivities were based on the debt balances prior to the commencement of amortisation, as all outstanding debt issues had 100% bullet repayments
Furthermore, the Company's ability to meet the bullet repayments
on the IMTN and other borrowings hinges on the disposal of the office tower.
Based on its 12- to 18-month forward-looking liquidity analysis, Moody's highlights that GCC issuers' prospects in 2012 will be determined by factors such as their ability to roll over short-term maturities (less than one year), address upcoming bullet repayments
and improve their operating performance.
Potential refinancing risk, due to bullet repayments
on issued bonds (especially in 2019 and 2022), is mitigated by prudent liquidity management.
All of KLCC REIT's existing financings will be refinanced with the proposed sukuk, which is expected to result in a more spread out debt maturity profile with smaller bullet repayments
. The REIT's assets that are of exceptional quality, namely PETRONAS Twin Towers, Menara 3 PETRONAS and Menara ExxonMobil, coupled with their respective long-term leases further support the ratings assigned.
"It also recognises the uncertainties related to large restructurings, particularly in the context of non-commercial interest rates, bullet repayments
or as-yet-untested corporate cash flows."