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CapitaLand Integrated Commercial Trust -- Moody's assigns A3 to CICT's MTN drawdown

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Rating Action: Moody's assigns A3 to CICT's MTN drawdownGlobal Credit Research - 08 Mar 2021Singapore, March 08, 2021 -- Moody's Investors Service has assigned an A3 senior unsecured rating to the SGD460 million notes issued by CMT MTN Pte. Ltd. under its existing multicurrency medium-term note (MTN) program, which is also rated (P)A3. CMT MTN Pte. Ltd. is a wholly-owned subsidiary of CapitaLand Integrated Commercial Trust (CICT, A3 negative). The notes are guaranteed by HSBC Institutional Trust Services (Singapore) Limited in its capacity as a trustee of CICT.The notes have a fixed coupon rate of 2.1% per annum and mature on 8 March 2028.CICT's A3 issuer rating reflects its (1) large scale and market position as the second largest real estate investment trust (REIT) in APAC, (2) diversified and balanced portfolio covering integrated developments, retail and office assets, and (3) strong and stable income from its assets, which have a diversified tenant base and consistently high occupancy rates.The outlook on the rating is negative.CICT will use the proceeds from the notes to refinance its existing borrowings and that of its subsidiaries, as well as for general corporate and working capital purposes.RATINGS RATIONALEThe rating on the notes mirrors CICT's issuer rating and incorporates Moody's expectation that the REIT's leverage, as measured by adjusted net debt/EBITDA will weaken following its recently completed merger with CapitaLand Commercial Trust (CCT, Baa1 stable), given the latter's higher leverage as well as the approximate SGD1 billion of incremental debt needed to fund the merger's cash consideration. Still, Moody's expects CICT will be able to reduce its leverage to levels more appropriate for its A3 rating over the next 12 to 18 months. But in the absence of such debt reduction, Moody's estimates CICT's adjusted net debt/EBITDA will remain elevated at around 10.0x in 2021 despite taking into account the full-year of income generated from the assets transferred from CCT.The negative outlook reflects the uncertainty surrounding (1) the extent of the impact from coronavirus-related disruptions on the earnings and performance of CICT's retail properties; and (2) CICT's long-term financial policy and business strategy following its merger with CCT.CICT's liquidity profile is inadequate. At 31 December 2020, the trust's cash and undrawn committed facilities were insufficient to cover its SGD1.78 billion of debt maturities over the next 12-18 months. Nonetheless, Moody's expects CICT will improve its liquidity profile over the next few months. The refinancing risk is also mitigated by the trust's track record of access to funding and established banking relationships, as well as by its financially strong and committed sponsor, CapitaLand Limited, a Temasek Holdings (Private) Limited (Aaa stable) linked entity.In terms of environmental, social and governance (ESG) factors, Moody's has considered the governance risk stemming from related-party transactions between CICT and its sponsor, CapitaLand Limited. This risk is mitigated by the regulatory oversight provided by the Monetary Authority of Singapore and exercised through the board, which for the majority consists of independent directors. Further, there is an alignment of interest between CICT and its sponsor because the latter has a 28.89% stake in the trust.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGGiven the negative outlook, an upgrade is unlikely. However, the outlook could return to stable if (1) the operating environment improves significantly over the next 12 months; (2) CICT improves its credit metrics, such that its adjusted debt/total deposited assets remains below 45% and adjusted net debt/EBITDA falls below 8.5x, both on a sustained basis; and (3) the trust improves its liquidity position, such that its cash and committed credit facilities are sufficient to cover its debt maturities over the next 12 months.The rating could be downgraded if (1) the operating environment deteriorates, leading to higher vacancy levels and a decline in operating cash flow or a fall in asset valuations; (2) the trust fails to maintain a well-managed debt maturity profile; or (3) the credit metrics of the trust weaken, such that its adjusted debt/total deposited assets exceeds 45%, adjusted net debt/EBITDA remains above 8.5x, or adjusted EBITDA/interest coverage falls below 3.0x. In addition, any material change to CICT's business risk profile from acquisitions and/or expansion into higher risk jurisdictions could also pressure the trust's rating.The principal methodology used in this rating was REITs and Other Commercial Real Estate Firms published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1095505. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.CapitaLand Integrated Commercial Trust (CICT) is the second largest REIT in the Asia Pacific region, with a total portfolio property value of around SGD22.3 billion and market capitalization of around SGD14.0 billion as of 31 December 2020. The trust was listed on the Singapore Stock Exchange in 2002. The trust has a portfolio of 24 retail, office and integrated developments in Singapore and overseas.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Junling Tan Analyst Corporate Finance Group Moody's Investors Service Singapore Pte. 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