Moody's reviews Suntec for possible downgrade

The real estate trust’s intention to acquire interests in Marina Bay properties through debts might put its Baa1 corporate family rating and Baa2 unsecured debt rating in a precarious position.

"The rating action is driven by Suntec's intention to acquire a one-third interest in Marina Bay Financial Centre Towers 1 and 2, and the Marina Bay Link Mall (MBFC) for SGD1.5 billion. The large transaction size, if substantially funded via debt, may pressure its ratings, which were already weakly positioned at the Baa1 level," said Philipp Lotter, a Moody's Senior Vice President.

"Although the acquisition will increase Suntec's exposure to the prime Singapore office segment, and may prove to be strategic and portfolio-enhancing, its implications for the Trust's financial profile and credit metrics are unlikely to be known until funding plans for the transaction are decided," said Lotter.

In order for the Baa1 rating to be maintained, Moody's would be looking for Suntec to fund the transaction such that its Debt/Total Assets remains below 35-40%; its Debt/EBITDA remains around 7x; and that the EBITDA/Interest coverage no less than 3x. Furthermore, Moody's would expect Suntec to further extend its debt maturities to strengthen liquidity and support its financial flexibility by maintaining significant unencumbered assets.

As part of the review, Moody's will focus on the proposed funding structure for the transaction, including any chosen mix of debt and equity, and the resulting financial profile;  the extent to which Suntec is able to successfully execute its chosen funding mix; refinancing plans for maturing debt, and an assessment of Suntec's growth strategy and other strategic initiatives that could emerge over the medium term.

"Moody's expects to complete the review within 2-3 months", Lotter added.

The last rating action with respect to Suntec was taken on August 31, 2009, when its Baa1 corporate family and Baa2 unsecured ratings were affirmed with a negative outlook.