Published on 10 Sep 2021.
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 Company’s strong debt servicing ability, backed by the steady inflow of monthly Availability Charges (ACs) which it is entitled to receive following the completion of a training centre for the Public Works Department (PWD), known as the Centre of Excellence in Engineering and Technology (CREaTE or the Project). ACs are the sole source of repayment for the Bonds. Indera Persada has inked an 18-year Concession Agreement (CA) with the PWD, expiring in September 2031, which includes a three-year construction period.
The Company recorded a debt service coverage ratio (with cash, post distribution, calculated over a 12-month period in payment months, DSCR) of 2.42 times in FY Sept 2020, outperforming RAM’s projection of 2.14 times. The DSCR ratio surpassed the minimum 1.5 times required for a non-complex public private partnership/private finance initiative AA1-rated transaction. This was because of stronger cash reserves following the timely receipt of ACs and advances from the Company’s ultimate shareholder, Digistar Corporation Berhad.
Receipts from the Government of Malaysia (GoM) were timely and within our expectations. ACs were received within respective averages of 41 days and 40 days from the date of invoice for 2020 and 6M 2021. Maintenance service charges (MSCs), which the Company is paid for the Project’s maintenance, were received within respective averages of 53 days and 52 days for the same periods. Counterparty risk is deemed low as the ultimate obligor of monthly concession payments is the GoM, via the PWD.
In RAM’s stressed analysis, Indera Persada’s minimum and average DSCRs are projected to come in at 1.52 times and 1.87 times while distributions to shareholders will amount to RM24.6 mil throughout the remaining tenure of the Bonds (base case: 1.84 times and 2.39 times). Our sensitised assumptions include a three-month delay in the receipt of ACs and MSCs from invoice dates, expenses not exceeding the sum of MSCs received (with any excess covered by Digistar), and the optimisation of shareholder distributions as per distribution covenants.
Maintenance services continued uninterrupted during the various phases of the Movement Control Order. However, Indera Persada recorded high average monthly MSC deductions owing to the Company’s inability to address maintenance issues within the timeframe prescribed by the PWD. The Company has also relied on advances from Digistar to cover project expenses and maintenance costs, given limits on the utilisation of cash in the transaction designated accounts.
A combination of rising expenses and high performance-related deductions are generally viewed with caution from a credit perspective. In the absence of continued financial assistance from Digistar, insufficient funds to support expenses may result in heightened performance risk and consequently heftier monthly MSC deductions. Three consecutive months of MSC deductions of above 25% will expose Indera Persada to the risk of termination of the CA.
Should the CA be terminated due to Indera Persada’s non-performance, which may disrupt concession payments and affect the Company’s debt-servicing aptitude, the PWD would have to pay the former the outstanding amount of financing raised for the construction of CREaTE. In the unlikely event the GoM defaults on its obligations, it must pay Indera Persada the present value of ACs throughout the remaining concession period, in addition to outstanding ACs and MSCs due at the point of termination.
Seri Nuralya Munawir
(603) 3385 2484
Davinder Kaur Gill
(603) 3385 2525
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Ratings on Indera Persada Sdn Bhd