FW: RAM Ratings reaffirms AA1 rating of Indera Persada's bonds

 

Published on 15 Dec 2017.

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 Bonds). The reaffirmation of the rating reflects Indera Persada’s continued ability to generate healthy cashflows to service financial obligations under its Serial Bonds. Indera Persada is envisaged to register a strong debt service cover ratio (DSCR, with cash balances, post-distribution on payment months) of at least 1.49 times throughout the tenure of the Bonds, supported by a steady inflow of Availability Charges, despite RAM’s stress-test assumptions of delays in monthly and lump-sum payments from the Public Works Department (PWD). 

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 Availability Charges from the PWD commencing September 2016, for the next 15 years. This payment will be the sole source of repayment of the Bonds. The level of counterparty risk faced by Indera Persada is low, given that the ultimate obligor of monthly concession payments is the Government of Malaysia (GoM). 

Indera Persada’s debt-servicing ability remains strong. However, its DSCR is weaker compared to previous expectations due to several unexpected issues. These issues include (1) delays in the receipt of reimbursements from the PWD for ICT and training equipment and private finance initiative (PFI) costs incurred during the construction period, (2) higher-than-anticipated expenses, and (3) a RM19.5 million repayment of an amount owing to the ultimate shareholder of the Company – Digistar Corporation Berhad (Digistar).

Despite the CA stipulating a lump-sum receipt for the ICT and training equipment and PFI costs, these amounts had subsequently been renegotiated into several tranches. To date, RM3 million of the ICT and training equipment cost and the full RM6 million of the PFI costs remain outstanding from the PWD. Our sensitised cashflow analysis has incorporated further delays in the receipts of the said reimbursements from the PWD, as well as higher expenses throughout the tenure of the Serial Bonds, under which Indera Persada’s debt-servicing ability remains intact. In addition, the Company repaid advances owing to Digistar. These advances were treated as equity funding for the construction of the CREaTE. While the financing terms are silent on the repayment of amount owing to related companies, we were informed by Indera Persada that it is still in compliance with the distribution covenants even after accounting for the repayment, as reviewed by the Trustee and Facility Agent.

The rating is moderated by the risk of delays in monthly Availability Charge payments. While there has been delays in payments from the PWD during the initial months subsequent to the issuance of a Certificate of Acceptance, these delays have reduced since April 2017. The transaction is also exposed to the risk of termination of the CA. The Company currently carries out maintenance for the CREaTE in-house, led by an individual with experience in managing maintenance works for the PWD. In view of the relatively straightforward nature of the works, termination of the CA due to non-performance on the part of the Company is unlikely. 

Indera Persada is a single-purpose company set up to undertake the development of and provide asset management services for the CREaTE in Malacca under an 18-year CA with the GoM, dated 18 March 2013.

Analytical contact
Chin Wynn, CFA
(603) 7628 1170
chinwynn@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my