Published on 27 Dec 2019.
RAM Ratings has assigned a final long-term rating of AAA/Stable to Starbright Capital Berhad’s (the Issuer) up to RM700 million Asset-backed Medium-term Notes (2019/2028). The transaction has been structured to monetise the balance of receivables due under the Termination and Settlement Agreement (TSA) dated 24 May 2019 between Pengurusan Air Selangor Sdn Bhd (Air Selangor), Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (SPLASH) and Sungai Harmoni Sdn Bhd (Sungai Harmoni).
The TSA relates to the settlement of receivables owing from SPLASH to Sungai Harmoni for operations and maintenance (O&M) works performed, where SPLASH will pay Sungai Harmoni a settlement sum and cut-over sum for residual O&M fees under Sungai Harmoni’s previous O&M Agreement. Upon financial close, the balance settlement sum of RM644.38 mil as well as the unpaid cut-over sum of RM4.05 mil (both paid in nine equal annual instalments), alongside interest charges of 5.25% per annum on the remaining outstanding amount (collectively, the Receivables), will be sold to the Issuer by way of absolute legal assignment. These payments will be the sole source of repayment for the Notes.
Although the primary payment obligation lies with SPLASH, Air Selangor – its parent company – guarantees and undertakes to pay any missed instalments (including default interest of 6.75% per annum on unpaid portions of the Receivables) upon written demand. As such, the rating is underpinned by Air Selangor’s credit profile and its ability and willingness to honour its guarantee obligations under the TSA. As Air Selangor’s role is strategically and naturally aligned with the state government’s mandate to provide essential water services to the public, its credit profile – and the rating of the Notes – mirror that of the state of Selangor.
Under the transaction, the Issuer will issue RM665 million of Notes backed by the Receivables. In assigning the final rating, we have reviewed all relevant transaction documents and find them to be in line with our expectations when we assigned the preliminary rating, published on 21 November 2019. Our imputed stress scenarios continue to indicate sufficient liquidity and cashflow to enable timely servicing of the Notes – both on an ongoing basis and in the event of a full mandatory prepayment, if exercised. The transaction will be supported by an initial six-month coupon reserve of RM14.1 mil, a prefunded maintenance account for the Issuer’s annual expenses over the life of the Notes amounting to RM2.7 mil, and a RM1 mil cash reserve as additional liquidity support for principal redemption. The Issuer’s estimated first year tax expenses will also be prefunded and on an annual basis, amounts will be set aside to meet expected tax obligations.
Upon closing, RAM will monitor the transaction’s performance on a regular basis via notices and reports from the Trustee, including semi-annual reports on designated account balances and details on funds invested in permitted investments. We will keep the rating under surveillance as long as there are outstanding Notes. Please refer to our final rating rationale for further details on the assigned rating.
(603) 3385 2520
Chong Van Nee
(603) 3385 2482
(603) 3385 2577
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Ratings on Starbright Capital Berhad