Published on 21 Jun 2021.
RAM Ratings has reaffirmed the AA3/Stable rating of the RM52 mil Tranche 1 IMTN under Trinity Asia Ventures Berhad’s (the Issuer) RM1.5 bil Sukuk Musharakah Programme (IMTN Programme). The Issuer is the special-purpose funding vehicle of Trinity Group Sdn Bhd (the Sponsor). The Tranche 1 IMTN is backed by sale and purchase agreements (SPAs) signed with buyers for a high-rise residential development – Trinity Lemanja (the Project) – in Kepong, Kuala Lumpur.
The reaffirmation of the rating reflects full project completion, which diminishes the transaction’s exposure to construction or liquidity risks arising from cashflow mismatches and cost overruns. As per the Certificate of Practical Completion (CPC) issued by the architect, the construction of Trinity Lemanja was fully completed on 6 May 2021, in line with the revised completion date under the third Extension of Time (EOT) granted to the contractor. The rating also considers the largely end-financed receivables profile, where no buyer has to date defaulted on nor requested the rescheduling of payments due.
Given the total lockdown in force for the month of June 2021, we expect the Project to see a delay of one to two months in obtaining the Certificate of Completion and Compliance (CCC) and completing the delivery of vacant possession, from the developer’s target of July 2021. The Project’s extended legal CCC date (in February 2022) and the transaction’s expected maturity date (in March 2022) afford more than enough room for such delay.
Based on the quantity surveyor’s financial report as of March 2021, the actual Gross Development Cost is expected to be 5% lower than the contracted sum, excluding the RM2.5 mil contingency sum. The lower cost and unaccounted cashflows from 11 units sold post-issuance of Tranche 1 mitigate the risk of cost overruns and/or an additional compliance cost, albeit remote in view of the current project status. While the developer expects to apply for an EOT to end-2021 for the issuance of strata titles to buyers, which will delay the inflow of cash equivalent to 2.5% of sold Gross Development Value, funds in the transaction will still be more than adequate to redeem the sukuk after VP is delivered to all buyers.
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 for 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 bil Sukuk Murabahah ICP Programme alongside the IMTN Programme.
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