Published on 14 Apr 2020.
RAM Ratings has reaffirmed the AA3/Stable rating of the RM290 million Tranche 1 IMTN under Exsim Capital Resources Sdn Bhd’s (Exsim Capital or Issuer) RM2 billion Sukuk Musharakah Programme (IMTN Programme). The reaffirmation is premised on the overall satisfactory construction progress of the underlying projects and better than expected buyers’ default performance since issuance. Notably, the actual buyers’ default, draw on the available liquidity facility, and the decline in the value of resold units were well within our sensitivities. We expect the developments to be completed and Vacant Possession (VP) delivered to the purchasers in the next few months, with minor delays (if any) from the legal VP dates given the Movement Control Order (MCO) and entailing minimal liquidity requirements. The Tranche 1 IMTN is backed by sale and purchase agreements (SPAs) signed with buyers for the Nidoz Residences (Nidoz) and D’Nuri Residences (D’Nuri) development projects (collectively, the Projects) in Desa Petaling, Kuala Lumpur. Exsim Capital is a subsidiary and special-purpose vehicle of Exsim Development Sdn Bhd (Exsim).
Since issuance, monthly progress reports have indicated that construction has largely advanced as planned, albeit with some delays. Based on monthly progress reports as at end-January 2020, the construction progress of both Nidoz and D’Nuri had exceeded 96%, having reached the roof top. The bulk of remaining works to be completed are the interiors, urban farming and common facilities, as well as obtaining relevant approvals for the issuance of the Certification of Completion and Compliance. Notably, the contractor for D’Nuri had, on 10 March 2020, completed its construction works and handed over the site to the developer.
The MCO declared by the government in March 2020, initially effective for four weeks, had brought Nidoz’s construction works to a halt until mid-April 2020. On 10 April 2020, the government extended the MCO by a further two weeks while allowing construction works to progress if a project had achieved physical completion of at least 90%, subject to approval. In that regard, the developer of the Projects will be applying for approval to recommence construction works and concurrently request an extension of time from the housing ministry to deliver VP to the home buyers, as a contingency plan. Given the respective available time buffers of three and four months from the legal VP dates for Nidoz and D’Nuri before the MCO, the developer expects to deliver VP to buyers with minimal delay from the respective legal VP dates in June/July 2020, unless the MCO is extended to a point to which the available time buffer is depleted. The Projects are anticipated to be completed and VP delivered to the purchasers by the legal VP dates if approval to restart construction while the MCO is in place is obtained.
As at end-January 2020, the developer had sold an additional unit at Nidoz, leaving four remaining unsold units with a total gross development value (GDV) of RM3.7 million. Nine cash buyers for Nidoz had terminated or defaulted on their purchases since issuance, forfeiting a total of RM0.5 million of deposits. D’Nuri saw no defaults. This translates into a default rate of 0.90% against the initial GDV at issuance, well below RAM’s applied default frequency of 5.1% for Nidoz, thanks to the substantial proportion (95.9%) of units end-financed by financial institutions. The defaulted units were subsequently resold at about the same price on average, better than our stressed assumption of 47.8%.
From the working capital requirement perspective, we highlight that only RM10 million out of the Tranche 1 ICP limit has been drawn to date, which is lower than the sum in our sensitised scenario. The RM10 million of ICP was fully repaid in June 2019 using cash in the HDA accounts. Given an average monthly cashflow from progress billings of RM30 million, with a substantial amount of progress billings expected from the delivery of VP to buyers over the next few months, liquidity requirements are viewed as minimal. In this regard, the Issuer had in March 2020 reduced the overall Tranche 1 ICP limit to RM55 million, a sum deemed adequate, considering the advanced stage of construction works.
The IMTN Programme allows Exsim or its subsidiaries (the Group) to monetise progress billings, where the Group will from time to time sell to the Issuer its beneficial interest under respective SPAs signed with buyers related to specific property development projects. Future receipts under such agreements will be utilised to fund remaining construction costs of the identified projects, as well as to meet the Issuer’s fees, expenses and obligations under each sukuk issuance. As a contingent line for the transaction, Exsim Capital has also established an unrated RM1 billion Sukuk Murabahah ICP Programme alongside the IMTN Programme.
Lim Chern Yit
(603) 3385 2528
(603) 3385 2577
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