RAM Ratings revises Tenaga Rapi’s rating outlook to stable, reaffirms AA2 ratings

Published on 28 July 2015

RAM Ratings has revised the outlook on the rating of Tenaga Rapi Sdn Bhd’s (Tenaga Rapi or the Group) RM60 million Nominal Value Secured Bonds (2012/2017) (the Bonds) from positive to stable. The rating of the Bonds, meanwhile, has been reaffirmed at AA2/Stable.

Tenaga Rapi is a trust-owned special-purpose vehicle incorporated to issue the Bonds to fund the acquisition of 100% of the equity interest of Pustaka Panglima (Malaysia) Sdn Bhd (Pustaka Panglima) from Panglima Capital (M) Sdn Bhd. Pustaka Panglima, in turn, 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) under a Privatisation Agreement (PA). Dividend receipts from Anjung are the Group’s sole source of cashflow.

The outlook on the rating of the Bonds was revised to positive last year on expectations 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 RM110 million Junior Notes (the Notes) on 18 June 2015. The Group’s debt-service coverage ratio (DSCR) was also expected to come in at a minimum of 1.50 times amid large cash buffers. While the Notes has been redeemed, the current revision of the outlook to stable reflects the Group’s thinner cash buffers following an unexpected RM13 million investment in AA1-rated sukuk (the Sukuk) that will only mature after the last payment on the Bonds. Higher-than-expected legal expenses had also trimmed its debt-coverages.

Although investment in the Sukuk is allowed under Anjung’s transaction documents and entails a low level of credit risk, the Group remains exposed to market and liquidity risk should the investment be liquidated prior to maturity. Treating only 80% of the value of the Sukuk as cash equivalent, Tenaga Rapi’s projected DSCR (calculated over a 12-month period on profit/principal-payment months, with 3 months of delays in concession receipts) is expected to come in at a minimum of 1.25 times and average of 1.72 times during the remaining tenure of the Bonds. In the worst case, we also note of the Group’s just adequate cash coverage in meeting the final obligation in respect of the Bonds should this investment be excluded as cash equivalent.

Notwithstanding the above negative development, the rating continues to be supported by Anjung’s stable concession income, given that counterparty risk is low with the Government of Malaysia (GoM) as the ultimate paymaster of concession payments. Operational risk is also minimal in view of the relatively straightforward nature of maintenance and management (M&M) work for the office complex. Tenaga Rapi’s debt-servicing ability is further safeguarded by the tight transaction structure and covenants that 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 for the trustee’s approval of the annual M&M budget for the office complex. Post-repayment of Anjung’s RM110 million Junior Notes, the trustee will also become the joint signatory to all payments made at Anjung, enabling better monitoring and control.

Nevertheless, the ratings remain moderated by the risk of delays in concession payments and the availability of funds at Tenaga Rapi. As holders of the Bonds are several layers removed from Tenaga Rapi’s source of cashflow, the administrative procedure involved when Anjung flows dividends up to the Group gives rise to the risk of delayed receipts of payment at the Group. 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.

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