Published on 10 Nov 2020.
RAM Ratings has reaffirmed the AA3/Stable rating of the RM52 million Tranche 1 IMTN under Trinity Asia Ventures Berhad’s (the Issuer) RM1.5 billion Sukuk Musharakah Programme (IMTN Programme). The Tranche 1 IMTN is backed by sale and purchase agreements (SPAs) signed with buyers relating to a high-rise residential development – Trinity Lemanja – in Kepong, Kuala Lumpur (the Project). Trinity Asia Ventures is a SPV wholly owned by Trinity Group Sdn Bhd.
The reaffirmation reflects the sturdy projected cashflow, underpinned by the profile of the underlying largely end-financed receivables, and the considerable time buffer available to mitigate the risk of construction delays and any liquidity risks arising from cashflow mismatches. Despite Trinity Lemanja’s contracted completion date being extended by one and a half months to 16 April 2021 due to Movement Control Order (MCO) disruptions, the Project still has an adequate period of two to three months to meet the developer’s target date for receipt of Certificate of Completion and Compliance (CCC). The targeted CCC (or Vacant Possession (VP)) date is now two months before the legal CCC date and approximately eight months before the expected maturity date of outstanding IMTN. The Project’s monthly progress report as at end-September 2020 indicates that the main building works have caught up with the revised target at 72.81%. As verified by the independent project certifier (IPC), the developer should have minimal difficulty meeting the targeted VP date of July 2021.
Additional costs that may be incurred due to the extended completion time are expected to be borne by the contractor in accordance with the fixed-price lump-sum contract. In any case, we believe the Project’s contingency sum and expected cost savings provides sufficient buffers to absorb the extra costs. Based on the quantity surveyor’s financial reporting as at end-July 2020, cost savings are estimated at about RM8.66 million or 5.7% of the total contract sum, apart from the RM2.5 million contingency sum. While no credit benefit is given to units sold post-issuance of Tranche 1 during the initial rating process, nine more units were sold between August 2019 and August 2020, adding a cash flow of RM5.80 million to meet the Issuer’s obligations.
With no buyer defaults observed to date and project costs and timing within the pre-MCO schedule, only RM1 million of the Tranche 1 ICP limit has been drawn to date – this sum has been fully repaid. The amount drawn was in line with the base projection and lower than levels assumed in RAM’s sensitised case. In this regard, the Issuer has requested for a reduction of the Tranche 1 ICP limit to RM20 million. Even with the reduced ICP, our sensitivity tests which assume a delay of up to three months in cash inflow, with projected cash outflow unchanged, indicated that it will be sufficient to address potential liquidity needs arising from timing mismatches and/or cost overruns. Furthermore, construction work on the Project is at an advanced stage, with all structural-related work having been completed, signalling lower construction risk.
The IMTN Programme allows Trinity Group 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 in respect of each sukuk issuance. As a contingent line for the transaction, Trinity Asia Ventures has also established an unrated RM1 billion Sukuk Murabahah ICP Programme alongside the IMTN Programme.
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