The Singapore-based S&P affirmed its BBB- long-term corporate credit rating and axBBB+ Asean scale rating on the company but said the “negative” outlook reflected its assessment that the extraordinary support from the Government could weaken if a proposed transaction between AR-REIT and Perbadanan Kemajuan Negeri Selangor proceeded as planned.

AR-REIT could not be reached for comment. A Singapore-based S&P analyst said he could not disclose the reasons for AR-REIT’s request to withdraw all ratings.

The analyst said the BBB- rating comprised two components its stand-alone credit profile and the “moderate” likelihood of extraordinary Government support, based on S&P’s criteria on government-related entities.

Although AR-REIT enjoys stable and resilient cashflows, high tenant security deposits and an improving market position in the Malaysian real estate investment sector, its credit profile shows a high exposure to the office property segment and increasing leverage.

AR-REIT is majority-owned by state pension fund Kumpulan Wang Bersama (KWB). The trust owns properties including Holiday Villa hotels in Langkawi and Alor Setar as well as Segi College branches in Kota Damansara and Subang Jaya.

If this goes through, KWB’s stake in AR-REIT will be diluted to 43% from 54%. One of S&P’s rating criteria for government-related entities is the support of Government, measured by the latter’s stake in a company.

“The proposed transaction with PKNS may result in the diminishing and perhaps eventual disappearance of Government support for AR-REIT,” the analyst said.

S&P also said in a statement that it could have revised the outlook to “stable” if the transaction with PKNS did not proceed, which would have resulted in KWB maintaining its majority shareholding in AR-REIT.