MARC AFFIRMS RATING OF AAA(fg) ON TRIPLC VENTURES SDN BHD’S RM240 MILLION SENIOR MTN PROGRAMME

MARC has affirmed its rating of AAA_(fg) on special purpose vehicle TRIplc Ventures Sdn Bhd’s (TVSB) RM240.0 million Senior Medium-Term Notes (Senior MTN) Programme with a stable outlook. The rating and outlook reflect the credit strength of an unconditional and irrevocable guarantee on the Senior MTN obligations provided by Danajamin Nasional Berhad (Danajamin) which carries a financial insurer rating of AAA/stable from MARC.

TVSB completed the construction of student hostels, faculty buildings and ancillary facilities on April 11, 2014 under the Zone 1 Phase 2 (Z1P2) project at the Universiti Teknologi MARA (UiTM) campus in Puncak Alam, Selangor. The private finance initiative/public private partnership (PFI/PPP) project is being undertaken by a concession from the government involving TVSB, the government as represented by the Ministry of Higher Education of Malaysia (MOHE) and UiTM. The 23-year concession is divided into a three-year construction phase and 20-year maintenance phase. MARC notes that with construction completed according to schedule, the maintenance phase has commenced under which the completed project is leased to UITM, which will make periodic availability charges (AC) and maintenance charges (MC).  The AC and MC form the source of repayment of the Senior MTN.

Post-construction, TVSB’s standalone credit profile assessment incorporates its performance during the maintenance phase of the project, and the performance of obligor UITM in ensuring timely payments are made which are in turn linked to MOHE’s capacity to fund the university. MARC deems the quantum of payments under the concession agreement to be sufficient to meet the principal and profit payments under the Senior MTN Programme. The AC payments are fixed at RM42.5 million per annum throughout the concession tenure while the MCs payments are subject to review every five years and conditional upon TVSB meeting specified key performance indicators. Any administrative issue that could potentially lead to a delay in AC and/or MC payments is expected to be moderated by the minimum required balance maintained in the debt service reserve account.

Notwithstanding the earnings stability and structural features, the project revenue is susceptible to operational underperformance during the facilities maintenance period. TVSB’s failure to comply with performance requirements set out in UiTM’s Building Maintenance Manual will result in a deduction in MCs due. MARC notes that in the event the MCs are insufficient to offset the penalties, the shortfall would be recovered from ACs due to TVSB after its debt service obligations have been met. MARC also expects TVSB to retain some experienced key personnel from the project management team to assist in the maintenance of the facilities. This would somewhat address concerns over the experience of the appointed facilities management servicer, TRIplc FMS Sdn Bhd (TRIplc FMS), a sister company of TVSB and also a wholly-owned subsidiary of TRIplc Berhad.

The base case pre-dividend minimum and average debt service cover ratio (DSCR) of 1.94 times and 2.54 times respectively for the remaining tenure of the Senior MTN provide moderate buffer for underperformance by TRIplc FMS during the maintenance phase. In the event the concession is terminated due to the non-performance of TVSB, UiTM will pay the concession company the outstanding amounts of TVSB’s loans obtained for the purpose of constructing the facilities.

Nonetheless, noteholders are insulated from any downside risks in the project’s credit profile by virtue of Danajamin’s unconditional and irrevocable guarantee. Any changes in the supported rating or rating outlook will hinge largely on changes in Danajamin’s credit strength.

Contacts: Noor Izyani Saad, +603-2082 2256/ izyani@marc.com.my, David Lee, +603-2082 2255/ david@marc.com.my.

October 30, 2014