Oct 30, 2013 -
MARC has affirmed its AAA(fg) rating on TRIplc Ventures Sdn
Bhd’s (TVSB) up to RM240.0 million Senior Medium Term Notes (Senior MTNs) with
a stable outlook. The rating reflects the credit strength of an unconditional
and irrevocable financial guarantee provided by Danajamin Nasional Berhad
(Danajamin) on TVSB’s debt service obligations in relation to its Senior MTNs.
Danajamin carries an AAA insurer financial strength (IFS) rating from MARC
based on its role as a government-sponsored financial guarantee insurer (FGI)
and perceived high support from the government in view of its public policy
objective of facilitating greater corporate access to the domestic sukuk and
bond markets. The IFS rating on Danajamin incorporates MARC’s assessment of the
FGI’s willingness to pay financial guarantee claims on a timely basis.
Incorporated as a single purpose vehicle, TVSB is the
construction arm and wholly-owned subsidiary of TRIplc Berhad (TRIplc). The
company holds a 23-year concession for a private finance initiative/public
private partnership (PFI/PPP) project to construct and maintain facilities in
Zone 1 Phase 2 (Z1P2) of Universiti Teknologi MARA’s (UiTM) campus in Puncak
Alam, Selangor. The project is funded by proceeds from the Senior MTNs and
RM26.6 million unrated Junior Notes, and equity capital of RM26.6 million from
TRIplc. The concession agreement provides for a three-year construction phase
and a 20-year maintenance phase during which, TVSB is entitled to availability
charges (AC) and maintenance charges (MC) from UiTM. These charges form the
repayment source for the Senior MTNs.
MARC views residual construction risk to be minimal given the
project’s fairly advanced stage of physical progress at 80.07% as of June 30,
2013, construction cost incurred are within the estimated Gross Development
Cost of RM266.5 million and strong track record of the main contractor, Sunway
Construction Sdn Bhd (SUNCON). Under a firm price contract totaling RM191.0
million, SUNCON assumes the responsibility of completing the main construction
works of the project as per concession agreement and the potential liabilities
of TVSB under the contract relating to the performance of duties and liquidated
damages. As of July 25, 2013, TVSB’s total balances in disbursement account amounting
to RM89.8 million is sufficient to cover the estimated balance of construction
contract price of RM79.2 million. The fund is disbursed gradually based on
construction progress as certified by the project consultant to minimise
commingling risk related to its parent and ensure sufficient funds until
project completion.
Upon the issuance of a Certificate of Acceptance for project
completion which is targeted in April 2014, monthly AC and MC payments will be
payable to TVSB. The ACs are fixed throughout the concession tenure while MCs
are subject to review every five years and conditional upon TVSB meeting
specified key performance indicators. Failure to comply with performance
requirements set out in UiTM’s Building Maintenance Manual will result in a deduction
to MCs due. In the event the MCs are insufficient to offset the penalties, the
shortfall will be recovered from ACs due to TVSB after its debt service
obligations have been met. As performance failures can lead to an abatement of
project revenues and, ultimately to termination of the concession, MARC
considers the experience of the facilities management services (FMS) team to be
important.
Debt service during the construction phase is supported by a
prefunded debt service reserve account totalling RM26.6 million upon issuance,
of which RM8.87 million remains in the account as of July 25, 2013 to cover
TVSB’s debt service requirements for the next 12 months. The first repayment of
the Senior MTNs is due in October 2016 (FY2017) which will give TVSB more than
two years to build up the cash reserves from retained availability and
maintenance revenues. The base case pre-dividend minimum and average debt
service cover ratio (DSCR) of 2.16 times and 2.62 times respectively for the
post-construction remaining tenure of the notes indicates moderate room for
underperformance by the FMS team during the maintenance phase. Apart from
TVSB’s performance in facilities maintenance, MARC believes that a key driver
of the standalone credit risk of TVSB during the maintenance phase is the
timeliness of payments from UiTM which, in turn is linked to the Ministry of
Higher Education of Malaysia’s capacity to fund UiTM on an ongoing basis. As
the project transitions from construction to operations, MARC’s analytical focus
will be on TVSB’s ability to maintain the completed facilities pursuant to the
pre-agreed requirements and the timeliness of payments from UiTM.
Noteholders are insulated from downside risks in the project’s
credit profile by virtue of Danajamin’s unconditional and irrevocable
guarantee. Any changes in TVSB’s rating would be primarily driven by revision
of Danajamin’s credit strength.
Contacts:
Tan Eng Keat, +603-2082 2265/ engkeat@marc.com.my,
David Lee, +603-2082 2255/ david@marc.com.my.
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