According to the agency, the rental income of the mall operators will be impacted in the near future due to the closures ordered until March 31.
“Typically multiplex operators and large anchor tenants have force majeure clauses covering waiver of rentals during closure of operations. Additionally, as the revenue streams of all the tenants will cease for the closure period, their financial position is expected to be under pressure,” the agency said.
Rental expenses form a sizeable share of 12-16 percent of revenues for retailers, therefore, all tenants are likely to negotiate for waiver or rebate of the rentals.
In this case, around 45 percent of the rated mall portfolio is likely to be vulnerable.
“Entities with limited or no liquidity buffers as well as entities with low credit rating having ordinary financial flexibility also might be impacted.
“In an optimistic scenario, wherein the mall operations resume after around 15 days of closure followed by gradual improvement in footfalls, around 21 percent of the portfolio will face vulnerability,” it said.
In a stretch case scenario, wherein the closure extends beyond two months, the impact will be much larger, at around 62 percent of the rated portfolio.
ICRA believes that the strong promoter group will continue to support the group entities with timely infusion of liquidity and hence they will be better placed to withstand the crisis.
“We believe that though the debt-servicing ability of the mall operators may come under stress in the near term, the presence of liquidity buffers like debt service reserve accounts (DSRA) in the form of free cash, liquid investments, fixed deposits will play a significant role in managing the crisis.
“Entities with strong parent support and financial flexibility will also be able to mitigate the near-term risks more effectively,” Anand Kulkarni, Assistant Vice President and Associate Head – Corporate Ratings said.
The agency also noted that even after resumption of operations, the footfalls are expected to be muted, therefore, the financial position of the tenants will continue to be stressed.
ICRA, however, believes that the rental income of the mall operators, which also comprises a portion of the revenue share, is expected to gradually ramp up over the next few months.