RAM Ratings has reaffirmed the AA1/Stable rating of Indera Persada Sdn Bhd’s (Indera Persada or the Company) RM280 million Fixed Rate Serial Bonds (2013/2028) (the Bonds).

Published on 24 October 2016

RAM Ratings has reaffirmed the AA1/Stable rating of Indera Persada Sdn Bhd’s (Indera Persada or the Company) RM280 million Fixed Rate Serial Bonds (2013/2028) (the Bonds).

The rating is supported by Indera Persada’s fulfilment of obligations under its Concession Agreement (CA) with the Government of Malaysia (GoM) via the Public Works Department (PWD). The Company had completed the construction of the Centre of Excellence in Engineering and Technology (CREaTE or the Project) (previously Malaysia National Technology Advancement Centre (MTAC)) in Malacca, and installed ICT and training equipment for the Project ahead of schedule. CREaTE has been handed over to the PWD, and a Certificate of Acceptance received on 30 June 2016. As such, Indera Persada is no longer exposed to construction risk and can start collecting a highly predictable stream of monthly concession payments for the next 15 years from a strong counterparty. Going forward, Indera Persada’s debt-servicing ability is expected to be strong, with a projected stressed minimum Debt Service Cover Ratio (DSCR) of 1.72 times, throughout the tenure of the Bonds.

In return for the construction of CREaTE, Indera Persada will receive a highly predictable stream of monthly Availability Charges for the next 15 years, which will be the sole source of repayment of the Bonds. Despite the early completion of CREaTE, these payments started only in September 2016 as per the CA. Indera Persada had issued the first invoice for Availability Charges to the PWD in September and is expected to receive the first payment within 30 days of the date of the invoice. The level of counterparty risk faced by Indera Persada is low, given that the ultimate obligor of monthly concession payments is the GoM. Cashflow leakage is minimised by the tight structure and restrictive covenants of the transaction.

Nevertheless, the rating is moderated by the risk of delays in monthly Availability Charge payments due to administrative hurdles. Further, the transaction is exposed to the risk of termination of the CA. The Company currently carries out maintenance for CREaTE in-house, led by an individual with experience in managing maintenance works for the PWD. Given the relatively straightforward nature of maintenance works, termination of the CA due to non-performance on the part of the Company is not likely. Termination due to non-payment of Availability Charges by PWD is also deemed unlikely given that funds for the concession payments ultimately stem from the GoM.

Indera Persada is a single-purpose company set up to undertake the development of and asset management services for CREaTE under an 18-year CA with the GoM, dated 18 March 2013.

Analytical contact                                        Media contact
Kathleen Por                                                  Padthma Subbiah
(603) 7628 1015                                            (603) 7628 1162
kathleen@ram.com.my                                  padthma@ram.com.my