Published on 05 Jan 2021.
RAM Ratings has reaffirmed the AAA/Stable rating of Starbright Capital Berhad’s (the Issuer) RM665 mil asset-backed Medium-Term Notes (the Notes). The transaction has been structured to monetise the balance of receivables due under the Termination and Settlement Agreement (TSA) dated 24 May 2019 between Pengurusan Air Selangor Sdn Bhd (Air Selangor or the Guarantor), Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (SPLASH) and Sungai Harmoni Sdn Bhd.
The reaffirmation of the issue rating is premised on Air Selangor’s public policy role and important linkage to the Selangor state government (SSG). Highly anticipated support from the SSG in times of financial distress underpins our view that the Guarantor’s long-term rating mirrors that of the state. The Issuer has ultimate recourse to Air Selangor, which guarantees and undertakes in the TSA to pay any missed instalments payable by SPLASH, including default interest, upon written demand.
We maintain our view that Air Selangor has strong incentives to meet obligations under the TSA as the agreement forms a key part of the resolution of long drawn-out negotiations on Selangor’s water restructuring exercise. While the possibility of Air Selangor re-prioritising these obligations vis-à-vis its other payment commitments cannot be eliminated, we believe the risk remains remote.
As at 25 September 2020, Starbright had duly received scheduled annual payments of RM106.09 mil from SPLASH. The resultant balance of the Settlement Account stood at RM108.38 mil, which is sufficient to redeem Tranche 1 of the MTN on its maturity date and fulfil the next coupon payment, in line with our expectation. While cashflow is sensitive to payment delays and any unexpected deviations from budgeted transaction expenses, actual transaction expenses incurred were within the levels assumed as at end-September 2020.
The transaction incorporates structural features that include an initial six-month coupon reserve, a pre-funded maintenance account for the Issuer’s annual expenses over the life of the Notes as well as a RM1 mil cash reserve as additional liquidity support for principal redemption. The transaction also provides for the Issuer to mandatorily prepay all outstanding Notes in the event that SPLASH fully prepays all unpaid portions of the settlement sum, together with any prorated interest charges, at any time after the third anniversary of the upfront payment date. The rating does not reflect the prepayment risk on the Notes.
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Ratings on Starbright Capital Berhad