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.
Contacts:
Cheah Wan Kin, +603-2717 2932/ wankin@marc.com.my;
Taufiq Kamal. +603-2717 2951/ taufiq@marc.com.my.
August
3, 2017
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