Published on 24 Oct 2018.
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 reaffirmation of the rating reflects the Company's continued ability to generate healthy cashflow to service financial obligations under its Serial Bonds, despite some issues in the performance of its maintenance services. Despite RAM's stress-test assumptions of delays in monthly and lump-sum payments from the Public Works Department (PWD), Indera Persada is envisaged to register a strong debt service cover ratio (DSCR, with cash balances, post-distribution in payment months) of at least 1.51 times throughout the tenure of the Serial Bonds, supported by a steady inflow of Availability Charges (ACs).
In return for the construction of the Centre of Excellence in Engineering and Technology (CREaTE) under a Concession Agreement (CA), Indera Persada is entitled to receive a highly predictable stream of monthly ACs from the PWD effective September 2016, for the next 15 years. This payment will be the sole source of repayment for the Serial Bonds. Indera Persada faces low counterparty risk as the ultimate obligor of monthly concession payments is the Government of Malaysia (GoM).
To date, Indera Persada has incurred RM54,706 of monthly deductions on average, equivalent to 13.2% of the full eligible Maintenance Services Charges (MSCs). According to the management, the deductions are a result of disagreements over the quality of work performed by the Company. That said, likelihood of termination of the CA due to non-performance by Indera Persada is deemed low for the time being as the current level of deductions is well below the 25% trigger for three consecutive months that is required for the termination of the CA. We will continue to monitor the deduction levels for signs of further deterioration.
The rating is moderated by the risk of delays in monthly ACs. In early 2018, payments were delayed by up to three months due to the implementation of a new IT system by the PWD. However, these payments are now back on schedule; the recurrence of such an event is deemed unlikely.
Despite the CA's stipulation that the reimbursement of ICT and training equipment as well as PFI costs must be made in a lumpsum payment, these amounts had subsequently been renegotiated into several instalments. To date, the PWD has yet to settle RM3.85 million of the ICT and training equipment costs. Our sensitised cashflow analysis has incorporated further delays in the receipt of these reimbursements from the PWD. Even so, Indera Persada's debt-servicing ability remains intact as it will be balanced by the delay in distributions to shareholders.
Despite the still-strong projected DSCRs, the buffer for the transaction has been reduced following the repayment of RM39.79 million to the Company's ultimate parent, Digistar Corporation Berhad in fiscal 2017. In addition, Digistar has issued a new, unrated Fixed Rate Serial Bond of up to RM80 million via its subsidiary, Jaya Persada Sdn Bhd. We expect the finance cost of the new bond issue to be partially serviced via distributions from Indera Persada. We highlight that the Company should be able to cumulatively distribute approximately RM41 million throughout the tenure of the Serial Bonds, without triggering a downward rating action.
Indera Persada is a single-purpose company set up to undertake the development of and provide asset-management services to CREaTE in Malacca, under an 18-year CA with the GoM dated 18 March 2013.
Aw Wei Xuan
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