Mapletree merger: Moody's reviews MCT for downgrade, MNACT for upgrade

MOODY'S Investors Service has placed the Baa1 issuer rating of Mapletree Commercial Trust (MCT) on review for downgrade, ahead of its planned merger with Mapletree North Asia Commercial Trust (MNACT) in a S$4.2 billion deal.

Concurrently, Moody's is reviewing MNACT's Baa3 rating for an upgrade, the credit rating agency announced on Wednesday (Jan 5) after trading hours.

On Dec 31, MCT and MNACT proposed a merger that would give the combined entity a theoretical market cap of S$10.5 billion, making it the seventh-largest Reit in Asia. The transaction is expected to close by end-June.

"The review for downgrade reflects the potential weakening of MCT's credit metrics and uncertainty around its financial policy following the merger with MNACT," said Moody's analyst Tan Junling.

The deal could raise MCT's leverage, considering MNACT's weaker leverage profile and the incurrence of incremental debt and perpetual securities to fund the merger's cash consideration, Moody's noted.

On a pro forma basis, it expects MCT's adjusted net debt to increase to around 9.4 to 9.9 times Ebitda (earnings before interest, taxes, depreciation, and amortisation), from 8.2 times for the year ending March 2022. This is weaker than the 8.5 times downgrade threshold for MCT's Baa1 rating.

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Conversely, MNACT's review for upgrade reflects expectations that the trust could benefit from the deal. "However, the final impact on MNACT's rating will depend on our assessment of the likelihood of extraordinary support that MCT will provide to MNACT in case of distress," Tan added.

If the merger goes ahead as planned, Moody's review of MCT will focus on the business profile of the combined trust, the funding structure for the S$417.3 million cash consideration and the trust's financial policy, including its liquidity profile.

MCT's rating could be downgraded by up to 1 notch, if Moody's assesses it to have a more aggressive long-term financial policy post-merger. But the agency will also take into account its increased scale and geographic diversification.

The review of MNACT will focus on the ability and willingness of MCT to provide support to MNACT, its business strategy, capital structure and transparency around operational and financial performance. An upgrade will further rest on MNACT's stand-alone credit profile remaining intact.

Moody's is also reviewing its (P)Baa1 senior unsecured ratings on the medium-term note programs of MCT and its unit Mapletree Commercial Trust Treasury Company (MCTTC), as well as the Baa1 ratings on senior unsecured notes drawn down from the program under MCTTC.

MNACT-related ratings under review include the provisional (P)Baa3 ratings on the senior unsecured euro medium-term note (EMTN) programme of MNACT; the guaranteed senior unsecured EMTN programmes of 2 relevant entities, as well as the Baa3 guaranteed senior unsecured rating on the notes under Mapletree North Asia Commercial Treasury Company (HKSAR)'s EMTN programme.

The outlook on all MCT's ratings has been changed from "stable" to "rating under review", while that of MNACT has been changed from "negative" to "rating under review".

Units of MCT closed at S$1.84 on Wednesday, up 1.1 per cent, while units of MNACT closed flat at S$1.09.