Published on 09 Apr 2021.
RAM Ratings has reaffirmed the AA3/Stable rating of the RM68 mil Tranche 1 IMTN under Exsim Ventures Berhad’s (the Issuer) RM2 bil 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 commercial development – Scarletz Suites – located on Lorong Yap Kwan Seng, Kuala Lumpur (Scarletz or the Project). Exsim Ventures is a wholly owned subsidiary and special-purpose vehicle of Exsim Development Sdn Bhd (Exsim Group).
The reaffirmation of the rating reflects satisfactory construction progress and adequate liquidity in the transaction to bridge any cashflow timing mismatches arising from the suspension of construction works between March and April 2020 due to the Movement Control Order (MCO). The targeted date for issuance of Certificate of Practical Completion (CPC) had been pushed back to 15 November 2021 as a result of the three-month extension of time granted to the contractor. Nevertheless, the available time buffer remains sufficient with about six months between the developer’s targeted date for issuance of Certificate of Completion and Compliance (CCC) and Vacant Possession (VP) in May 2022. As at end-January 2021, the contractor had caught up on construction work to some extent, with 69.7% having been completed against the 70.1% under the revised timeline.
As at the same date, Scarletz stayed fully sold as five defaulted units were resold within two months during the review period. Progress billing payments from end-financed purchasers were minimally affected under the MCO and unimpacted by the mandatory six-month bank loan repayment moratorium. The developer had allowed cash buyers to defer payments between March and September 2020, of which 6.3% of gross development value were affected. These cash buyers were given the option to pay the deferred amount over three to six months, starting October 2020.
Deferred payments from cash purchasers and the administrative backlog in progress billing payments resulted in a larger than expected draw on the RM35 mil Tranche 1 ICP facility (RM28.42 mil vs RM11.76 mil) to fund working capital. That said, the amount drawn had been fully repaid. We anticipate minimal need to draw on this liquidity line going forward.
More recently, several foreign workers at the project site had contracted Covid-19. In line with the standard operating procedure, all works were suspended for two weeks in mid-February for testing, quarantine and monitoring of workers. All related expenses will be fully borne by the contractor. While we derive comfort from the fixed-price lump-sum contract with the contractor, any potential renegotiation of contract sums should be adequately cushioned by the Project’s estimated cost savings of RM27.89 mil (15.2% of total contract sum) from lower carpentry and electrical appliance costs.
Based on the latest progress report dated end-January 2021, physical construction work has reached an advanced stage and is on track to meet the CPC date, as verified by the Independent Project Certifier. In view of satisfactory construction progress and full take-up rate, with negligible cashflow loss arising from default, RAM expects the transaction to accumulate sufficient cash for full redemption of the Tranche 1 IMTN by 2H 2021, ahead of the targeted CPC date, as permitted under the transaction terms.
Liew Kar Ling
(603) 3385 2586
(603) 3385 2577
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