Published on 26 Nov 2020.
RAM Ratings has reaffirmed the A1/Stable rating of Special Power Vehicle Berhad’s (SPV or the Company) RM800 mil Class A Islamic MTN (IMTN) Facility (2005/2022), premised on the steady receipt of payments from Jimah Energy Ventures Sdn Bhd’s (JEV) RM895 mil Junior Debt. To subscribe for the Junior Debt, SPV had issued the Class A IMTN and RM215 mil of Class B IMTN, which is subordinated to the former. As SPV is an investment-holding company, it relies solely on residual cashflow from JEV (rated AA3/Stable by RAM) – an independent power producer (IPP) that owns a 1,400 MW coal-fired power plant in Port Dickson, Negeri Sembilan – to service its obligations on the IMTN.
The rating of SPV’s IMTN has been notched down from that of JEV, as the former is subordinated to the latter in terms of both cashflow waterfall and security. Given that SPV’s IMTN exhibits more debt-like features, it is deemed to have a low level of subordination, and thus supports a narrower gap between its rating and that of JEV’s sukuk.
Notably, JEV’s operational and financial performance improved in FY Dec 2019. The better showing is reflected by its steady payments to SPV to service its obligations on the Class A IMTN. SPV also facilitated a RM30 mil profit payment on the Class B IMTN last year. SPV and JEV’s (collectively known as “the Group”) subordinated finance service coverage ratio (sub-FSCR) is projected to be maintained at a minimum of 1.30 times (with cash balances, post-distribution, calculated on payment dates) throughout the tenure of the Class A IMTN. This considers SPV’s average distribution of about RM82 mil on the Class B IMTN in fiscal 2020 and 2021. On payments to the Class B IMTN holders, the Group has highlighted that it will observe its distribution covenants on a forward-looking basis throughout the tenure of the Class A IMTN, as opposed to only in the year of assessment - to preserve the aforementioned sub-FSCR.
SPV’s debt-servicing aptitude in respect of the Class A IMTN will be impaired if JEV fails to promptly fulfil its Junior Debt obligations due to a greater-than-expected deterioration in its operating performance, its capital expenditure is higher than projected, and/or distributions to the IPP’s shareholders are heftier than anticipated, coupled with a distribution on the Class B IMTN by the Company throughout the remaining tenure of the Class A IMTN.
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