Published on 07 Jan 2020.
RAM Ratings has reaffirmed the AA1/Stable rating of Indera Persada Sdn Bhd’s (the Company) RM280 mil Fixed Rate Serial Bonds (2013/2028) (the Bonds). The reaffirmation is premised on the receipt of stable and adequate concession payments to service the Company’s financial obligations under the Bonds. Based on a steady inflow of Availability Charges (ACs), the Company’s debt service cover ratio (DSCR) is expected to come up to at least 1.51 times (with cash balances, post-distribution on payment months) throughout the tenure of the Bonds. This is despite RAM’s stress-test assumptions of delays in monthly and lump-sum payments from the Public Works Department (PWD).
Indera Persada is a single-purpose company set up to undertake the development of and provide asset-management services to the Centre of Excellence in Engineering and Technology (CREaTE) in Malacca, under an 18-year Concession Agreement (CA) with the Government of Malaysia (GoM) dated 18 March 2013. In return for the construction of CREaTE, the Company will be entitled to receive a highly predictable stream of monthly Availability Charges (ACs) and Maintenance Service Charges (MSCs) from the PWD, commencing September 2016 for the next 15 years.
We have assumed that MSCs will be fully utilised to support operational expenses while ACs will be the sole source of repayment for the Bonds. The level of counterparty risk faced by Indera Persada is deemed low as the ultimate obligor of monthly concession payments is the GoM via the PWD. Notably, the rating is moderated by the risk of delays in the receipt of monthly ACs. In 2019, payments of ACs by the PWD have mostly been prompt, i.e. within 30-45 days from the date of invoice. On the other hand, payment of MSCs has ranged around 60-90 days due to administrative issues.
To date, Indera Persada has been incurring RM0.64 mil of fixed deductions per year since 2017. This translates into some 13.5% of full eligible MSCs, which is higher than those of other RAM-rated Private-Finance-Initiative concessions. According to the management, the deductions have been mainly due disagreement between PWD and Indera Persada over the quality of the Company’s maintenance services. These issues have been escalated to the PWD’s Dispute Resolution Committee and are pending resolution. In the meantime, the likelihood of termination of the CA due to non-performance by Indera Persada is deemed low as the current level of deductions is well below the trigger of 25% of MSCs for three consecutive months required for CA termination.
During the period under review, Indera Persada distributed a total of RM8 mil to its sole parent, Digistar Holdings Sdn Bhd as partial repayment of project construction costs. While the financing terms are silent on the repayment of advances owed to related companies, we understand that the Company had still complied with its distribution covenants even after accounting for the repayment – as verified by the Trustee and the Facility Agent. Although the Company’s debt-servicing ability is anticipated to remain healthy, we highlight that any distribution on a forward-looking basis needs to be curtailed to avoid exerting downward pressure on the rating.
Teoh Tze Yit
(603) 3385 2577
(603) 3385 2577
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Ratings on Indera Persada Sdn Bhd