RAM Ratings has reaffirmed the AA2 rating of Tenaga Rapi Sdn Bhd’s (Tenaga Rapi or the Company) RM60 million Nominal Value Secured Bonds (2012/2017) (Subordinated Debts or the Bonds).

Published on 17 July 2014

RAM Ratings has reaffirmed the AA2 rating of Tenaga Rapi Sdn Bhd’s (Tenaga Rapi or the Company) RM60 million Nominal Value Secured Bonds (2012/2017) (Subordinated Debts or the Bonds). Concurrently, the outlook on the rating has been revised from stable to positive.
Tenaga Rapi is a trust-owned special-purpose vehicle incorporated to fund the acquisition of the entire equity interest of Pustaka Panglima (Malaysia) Sdn Bhd (Pustaka Panglima) from Panglima Capital (M) Sdn Bhd. Pustaka Panglima wholly-owns Anjung Bahasa Sdn Bhd (Anjung) – the concessionaire for the design, construction and operation of an office complex for Dewan Bahasa dan Pustaka (DBP). In return, Anjung is entitled to monthly concession payments as well as maintenance and management (M&M) fees from the Government of Malaysia (GoM) – via DBP – over a 17-year period, as stipulated in the Privatisation Agreement (PA) between Anjung and the GoM. Anjung’s outstanding RM110 million Junior Notes (or Senior Debt) (rated AA1/Stable by RAM) matures on 18 June 2015. Its residual cash after servicing the Senior Debt is the sole source of repayment of the Subordinated Debt.
The positive outlook is premised on the expectation that the Bonds would no longer be subordinated in terms of priority to Anjung’s cashflow and assets placed as security, upon redemption of Anjung’s Senior Debt in June 2015. Concurrently, the Debt Service Coverage Ratio on the Subordinated Debt is expected to remain above 1.50 times, underpinned by timely and strong cashflow derived from the concession. The present 1-notch rating differential between the Subordinated Debt and the Senior Debt reflects the former’s structural subordination to the latter, which ranks ahead in terms of fixed and floating charges over the present and future assets and undertakings of Anjung, as well as the assignment of all rights under the project agreement.
The rating is supported by stable and robust cashflow at Anjung. Counterparty risk is deemed low as the GoM is the ultimate paymaster of the concession payments, while operational risk is minimal given the relatively straightforward nature of the M&M works. To this end, the Subordinated Debt is expected to have a minimum Subordinated Debt Service Coverage Ratio of 1.73 times for the remaining tenure of the Senior Debt. Elsewhere, Tenaga Rapi’s debt-servicing ability is safeguarded by the tight transaction structure and strict covenants that serve to mitigate cashflow leakage. These include a cap on Pustaka Panglima’s yearly operating expenses, the appointment of a trustee as the sole signatory to any cash outflow from Pustaka Panglima, as well as the requirement of the trustee’s approval of the annual M&M budget for the DBP office complex. Post-repayment of the Senior Debt, the trustee shall also be a joint signatory to all payments made at Anjung, enabling better monitoring and control.
The rating is, however, moderated by timeliness risk and the availability of funds at Tenaga Rapi. As holders of the Subordinated Debt are several layers removed from the Company’s source of cashflow, the administrative procedure involved when Anjung flows dividends up to Tenaga Rapi gives rise to the risk of delayed receipts of payment at the Company. The possibility of early termination of the PA due to default on the part of Anjung, too, cannot be fully eliminated, although this risk is moderated by Anjung’s proven track record and the relatively simplistic nature of its performance obligations under the PA.

Media contact
Juliana Koay
(603) 7628 1169
juliana@ram.com.my