MARC has assigned a final rating of AAAIS with a stable outlook to Putrajaya Bina Sdn Bhd’s (PBSB) proposed Islamic Medium-Term Notes (Sukuk Wakalah) Programme of up to RM1.58 billion. MARC had earlier assigned a preliminary rating of AAAIS/stable to the proposed issuance in February 2016.
As announced earlier, PBSB, a wholly-owned subsidiary of Putrajaya Holdings Sdn Bhd (PJH), is undertaking the development of nine blocks of government office buildings and one block of shared facilities under a concession agreement with the Malaysian government. The concession has since commenced in May 2017. Proceeds from the issuance will largely fund the RM1.9 billion development which entails a three-and-a-half-year construction phase and a 25-year asset maintenance phase. Upon completion of construction and one month after receipt of the Certificate of Acceptance, PBSB is entitled to receive monthly concession payments in the form of availability charges (AC) of RM215.6 million per annum and asset management service charges (MC) of RM69.2 million per annum for tenancy by various ministries and government agencies.
The assigned rating reflects the credit strength of the government which provides the AC and MC payments over the tenure of the Sukuk Wakalah Programme. The rating also incorporates an irrevocable and unconditional Letter of Support (LoS) from PJH to meet PBSB’s financial obligations, including cost overruns, until receipt of the first AC or MC, whichever is later. MARC maintains a long-term rating of AAA/stable on PJH. As at end-May 2017, PJH has advanced about RM397.7 million to PBSB to fund construction costs and has met the 80:20 finance-equity ratio requirement under the Sukuk Wakalah Programme.
Project construction is about 27.9% completed as at June 30, 2017 in line with the project milestone. The construction is being undertaken by Sunway Construction Sdn Bhd under a fixed-price contract. MARC considers the completion and cost overrun risks to be mitigated by the moderate complexity of the project, the established track record of the principal contractor and the terms of the fixed-price contract. In respect of termination risk by the government during the asset management period, PBSB will be entitled to a compensation amount of the net present value of foregone future AC payments discounted at the company’s weighted average cost of capital.
The AC payments will be paid monthly at a fixed amount of about RM18.0 million throughout the concession period, whereas the MC payments are contingent upon performance in accordance to prescribed service levels. The quantum of AC payments annually is largely supportive of the principal and profit payments under the programme. In respect of MC payments, MARC is of the view that PJH has the capability to manage and operate the facilities in accordance to the concession during the maintenance phase.
PBSB is required to maintain funds equivalent to the finance service amount, one month ahead of its due date at all times. In MARC’s opinion, this requirement adequately mitigates AC payment delay risk. In addition, PBSB is restricted from making dividend payments or shareholder advances in the event the post-distribution Finance Service Cover Ratio (FSCR) is below the minimum required level of 1.5 times. Based on MARC’s sensitivity analysis on PBSB’s cash flow projections, PBSB’s FSCR will range between 2.3 times and 27.9 times throughout the asset management period.
The stable outlook reflects MARC’s expectations on the receipt of timely and predictable payments from the government and that the credit strength of PJH will be maintained at its current rating level.
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August 3, 2017