Published on 04 Dec 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, underpinned by its strong debt coverage metrics.
Based on a steady inflow of Availability Charges (ACs), Indera Persada’s debt service cover ratio (DSCR, with cash balances, post-distribution on payment months) is expected to stand at no lower than 1.69 times throughout the remaining tenure of the Bonds. This is higher than the minimum FSCR requirement of 1.50 times, and despite RAM’s stressed assumption 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 ACs and Maintenance Service Charges (MSCs) from the PWD, for a span of 15 years effective September 2016.
For this transaction, we have assumed that Indera Persada will fully utilise the MSCs received to support its operating expenses while ACs represent its sole source of repayment for the Bonds. Counterparty risk is deemed low as the ultimate obligor of monthly concession payments is the GoM, via the PWD.
The rating is moderated by the risk of delayed receipt of monthly ACs and MSCs. In 2020, the PWD AC payments have mostly been prompt, i.e. within 30-40 days from the date of invoice, except for some delays during the Movement Control Order. On the other hand, payment of MSCs hovered around 66 days in FY Sep 2019 and 63 days in 9M FY Sep 2020 due to administrative issues, albeit within our three-month stressed assumption.
To date, Indera Persada has been incurring RM0.64 mil of fixed deductions per year since FY Sep 2017, equivalent to 13.5% of its MSCs. According to the management, the deductions have been escalated to the PWD’s Dispute Resolution Committee, and are pending resolution. While the fixed deductions on MSCs have remained unsolved since our last review, operating expenses surged in fiscal 2020. This is attributable to heftier other costs, including directors’ fees and staff remuneration.
We note that ultimate parent Digistar Corporation has been supporting Indera Persada’s operations-related costs. Digistar injected RM2.54 mil into the Company in FY Sep 2020. 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, as required for CA termination.
During the reviewed period, Indera Persada distributed a total of RM1.34 mil to Digistar as partial repayment of project construction costs. Distributions to shareholders are allowed under the transaction if the DSCR stands at no lower than 1.50 times post-payment. That said, the financing terms are silent on the repayment of advances owed to related companies. We understand that Indera Persada had still complied with its distribution covenants after accounting for its distribution – as verified by the Trustee and the Facility Agent. Although the Company’s debt-servicing ability is anticipated to remain healthy, any distribution on a forward-looking basis will need 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