MARC has affirmed the rating of AAA(fg) on special purpose vehicle TRIplc Ventures Sdn Bhd’s (TVSB) RM240.0 million Senior Medium-Term Notes (Senior MTN) Programme with a stable outlook. Both the affirmed rating and outlook are premised on the credit strength of an unconditional and irrevocable guarantee provided by Danajamin Nasional Berhad (Danajamin) on the Senior MTN obligations. Danajamin carries a financial insurer rating of AAA/stable from MARC.
TVSB holds a 23-year build-operate-transfer concession under a private finance/public private partnership project to construct and maintain facilities in Zone 1 Phase 2 (Z1P2) of the Universiti Teknologi MARA (UiTM) campus in Puncak Alam, Selangor. Since the commencement of the maintenance phase of Z1P2 in 2014, TVSB has begun to receive both availability charge (AC) and maintenance charge (MC) payments as per the terms of the concession. The AC payments are fixed at RM42.5 million per annum throughout the 20-year maintenance phase, while the MC payments are subject to meeting specified key performance indicators (KPI). The quantum of payments is deemed sufficient to meet the principal and interest payments under the rated programme.
MARC also draws comfort from the counterparty risk of UiTM, the principal lessee of the Z1P2, which consists of student hostels, faculty buildings and other building components. The university is principally funded by the Ministry of Higher Education and is obligated to make the AC and MC payments within 30 days of submission of the relevant invoices. As at date, delays have been minor, arising from administrative issues. The concern on payment delay is moderated by the minimum required balance maintained in the debt service reserve account (DSRA). MARC also notes that TVSB has maintained compliance with the KPI during the period under review.
For financial year ended May 31, 2016 (FY2016), TVSB recorded lower revenue of RM43.9 million (FY2015: RM49.9 million). Following a revision on the discounting factor used to determine the fair value of the services delivered, the company recognised lower finance income related to AC payments in FY2016, leading to a 13.1% year-on-year (y-o-y) decline in operating profit before interest and tax (OPBIT) to RM33.7 million. The accounting adjustment is not expected to affect TVSB’s cash flow generation and the value of the financial assets under the company’s balance sheet. Net cash flow from operations (CFO) of RM30.4 million in FY2016 was above projections while free cash flow (FCF) remained positive at RM18.1 million following a dividend payment of RM10.0 million.
TVSB’s base case pre-restricted distribution (referring to dividend and Junior Notes interest payments) minimum and average debt service cover ratios (DSCR) stand at 1.64 times and 1.99 times respectively throughout the debt tenure. Assuming dividend distributions of RM15.0 million in the financial years 2018 and 2019, the company’s post-restricted distribution DSCR is projected to be the thinnest in FY2023 at 1.57 times. The sensitivity analysis by MARC indicates that the post-restricted distribution DSCR will be below the minimum requirement of 1.5 times in FY2023 if the MC is reduced by up to 5%. MARC notes the highest Senior MTN debt obligation amounting to RM32.8 million occurs in FY2017. Liquidity risk is mitigated by the requirement to maintain the debt service reserve account’s (DSRA) balance of at least one year’s premium and six months’ interest charges while the next six-month principal payment shall be built up progressively commencing seven months prior to the principal redemption date. In addition, the Junior Notes interest payments can be deferred to the next scheduled payment date if the post-restricted distribution DSCR covenant is not met. As at October 31, 2016, the total balance in TVSB’s designated accounts stood at RM38.7 million.
Noteholders are insulated from any downside risks in the project’s credit profile by the unconditional and irrevocable guarantee provided by Danajamin. Any changes in TVSB’s rating would be largely driven by a revision in Danajamin’s credit strength.
November 18, 2016
[This announcement is available in the MARC corporate homepage at https://www.marc.com.my]
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This communication is provided by Malaysian Rating Corporation Berhad (MARC) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of its opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.
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