Published on 07 Feb 2019.
RAM Ratings has assigned a preliminary AA3/stable rating to the proposed MTN Programme of up to RM200 mil to be issued by Pujian Bayu Sdn Bhd (Pujian). Pujian is a wholly owned funding vehicle of TRIplc Berhad (TRIplc), and a sister company of TRIplc Ventures Sdn Bhd (TVSB). TVSB holds a 23-year concession for the development and maintenance of a campus for Universiti Teknologi MARA (UiTM) in Puncak Alam, Selangor (the Project).
Pujian is entirely dependent on the residual cashflow from TVSB to service its debt obligations, after the latter has met its obligations under an existing RM240 mil MTN Programme (Senior MTN). TVSB had issued the Senior MTN and RM35 mil of Junior Notes to fund the construction of the Project. Meanwhile, the bulk of the proceeds from Pujian’s proposed MTN will be advanced to TRIplc; the balance of the proceeds will be utilised to acquire TVSB’s Junior Notes, pre-fund Pujian’s designated accounts and defray issuance expenses.
The rating reflects Pujian’s strong debt coverage, underpinned by TVSB’s stable and predictable concession cashflow. The residual cashflow of TVSB will mainly be in the form of dividends to be paid by TVSB to TRIplc, further supplemented by coupons and principal repayments on TVSB’s Junior Notes. Since the Project’s completion in April 2014, TVSB has been receiving fixed Availability Charges within one to two months of billing from a strong counterparty, i.e. the Government of Malaysia (GoM), through UiTM. Based on RAM’s cashflow analysis, Pujian is projected to register a minimum subordinated debt service cover ratio (Sub-DSCR) of 1.34 times (with cash balances and calculated in payment months) throughout the tenure of the proposed MTN.
That said, the proposed MTN is subordinated to the Senior MTN, due to the former’s lower priority in terms of cashflow waterfall and security. TVSB has to meet its obligations under the Senior MTN and fulfil all covenants before cashflows can be flowed up to Pujian for the repayment of the proposed MTN. The holders of the proposed MTN will only be entitled to coupon payments in the first 10 years while principal repayment will only commence in February 2029, after the full redemption of the Senior MTN in October 2026.
The transaction’s cashflow will be ringfenced through a tight financing structure and restrictive covenants under TVSB’s Senior MTN as well as Pujian’s proposed MTN. Under the terms of TVSB’s Senior MTN, there are limitations on additional indebtedness and strict control over most of TVSB’s designated accounts. The dividends and payments on the Junior Notes from TVSB will be channelled directly to Pujian’s Proceeds Account, which is solely operated by the Security Trustee. Pujian is not allowed to make any distribution to its shareholder or assume any other debt. There will also be controls over the maintenance and administrative costs payable by TVSB to its related companies.
The transaction is exposed to the risk of termination of the Concession Agreement, which may result from a failure on TVSB’s part to provide the requisite maintenance services. In the unlikely event of a default by TVSB, compensation from the GoM will not cover the proposed MTN as it will only address the financing taken up to fund the construction of the Project, i.e. the Senior MTN. The holders of the proposed MTN will, however, be ranked second in terms of priority to TVSB’s assets, due to Pujian’s holdings of the Junior Notes. The timeliness of contractual payments from the GoM is a key risk factor.
Karin Koh, CFA
(603) 7628 1174
(603) 7628 1162
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Ratings on Pujian Bayu Sdn Bhd