Published on 29 Sep 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 Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (SPLASH or the Obligor) and Sungai Harmoni Sdn Bhd (the Originator). The Issuer has ultimate recourse to Pengurusan Air Selangor Sdn Bhd (Air Selangor or the Guarantor), which guarantees and undertakes in the TSA to pay any missed instalments payable by SPLASH, including default interest, upon written demand.
The reaffirmation of the rating reflects Air Selangor’s credit profile which hinges on its critical public policy role and importance to the Selangor state government (SSG). Air Selangor – Malaysia’s largest water operator – is the sole licence holder of water supply and distribution services in Selangor and the Federal Territories of Kuala Lumpur and Putrajaya. Highly anticipated support from the SSG in times of financial distress underpins our view that the Guarantor’s credit strength mirrors that of the state.
As the TSA forms a key part of the resolution of long-drawn negotiations on Selangor’s water restructuring exercise, Air Selangor is viewed as having strong incentives to meet obligations under the TSA and therefore unlikely to reprioritise these obligations vis-à-vis other payment commitments. Starbright duly received the scheduled annual payment from Air Selangor on 26 September 2021. The designated accounts report as at 30 June 2021 indicates that actual transaction expenses incurred were largely in line with the levels estimated.
The transaction includes a pre-funded maintenance account for the Issuer’s annual expenses over the life of the Notes and a RM1 mil cash reserve as additional liquidity support for principal redemption. The Issuer must mandatorily prepay all outstanding Notes if SPLASH fully prepays all unpaid portions of the settlement sum, together with any prorated interest charges, at any time after 26 September 2022. The three-month difference between the due dates of the annual instalments (starting September 2020) and payment dates of the Notes (starting December 2020) provides a buffer against any potential delay in payments from the Obligor. The rating does not reflect prepayment risk in respect of the Notes.
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Tan Han Nee
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Ratings on Starbright Capital Berhad