Published on 01 Apr 2022.
The projects backing the RM323 mil second issuance (Tranche 2 IMTN) under Exsim Capital Resources Berhad’s (Exsim Capital or the Issuer) RM2 bil Sukuk Musharakah Programme are progressing largely within expectation. Exsim Capital is a subsidiary and special-purpose vehicle of Exsim Development Sdn Bhd.
The Tranche 2 IMTN, issued in July 2021, is backed by future receipts under sale and purchase agreements (SPAs) for the development of D’Quince Residences and D’Vervain Residences in Damansara Perdana, Selangor. The receipts will be used to fund remaining construction costs of the two projects as well as to meet the Issuer’s fees, expenses and obligations in respect of the Tranche 2 IMTN.
Overall, construction works, liquidity available for the transaction and the projects’ buyer profile have been satisfactory and largely within expectations since financial close. The available time and liquidity buffers embedded in the transaction were more than adequate to cushion the impact of movement restrictions imposed to curb the spread of Covid-19 infections. Elevated building material costs owing to supply chain disruptions from the pandemic and the Russia-Ukraine conflict have not resulted in any cost overrun for the projects, given the fixed-price lump-sum construction contracts.
Based on monthly construction progress reports, construction works were delayed from initially expected timelines owing to the suspension of works for most of June and July 2021 because of the implementation of a full movement control order. The contractor was subsequently granted a 46-day extension of time for both projects. While this has pushed back the legal certificate of practical completion dates of D’Quince and D’Vervain to 20 August 2023 and 21 October 2023, respectively, the available time buffer remains sufficient, leaving an 11- to 12-month gap to the legal certificate of completion and compliance date (previously 12-13 months). As of 28 February 2022, both projects were making steady progress, as confirmed by the developer and the independent project certifier, with construction works in line with the revised schedule. The developments face no notable shortage of labour or building materials.
Defaults arising from buyers failing to meet their obligations under SPAs accounted for a negligible 0.3% of initial gross development value at closing (or five units) compared to RAM’s applied default frequency of 7.2% up to the Legal Maturity Date. That said, a total of 145 SPAs were mutually terminated on a goodwill basis by the developer and buyers who had lost their jobs during the pandemic. 147 of these defaulted/terminated units were, however, resold within one to two months at an average discount of about 2.0%. These units were resold at prices above our market value decline assumption of 41.8%. The developer has sold an additional 35 units since financial close, which had lifted the projects’ combined take-up rate to 99.4% as at end-December 2021 from 97.9% as at end-May 2021.
The transaction’s liquidity position was adequately supported by the Tranche 2 ICP. Since issuance, about RM40 mil has been drawn from the Tranche 2 ICP as at end-December 2021, more than half of which was repaid in February 2022. The larger than expected ICP drawdown was mainly attributed to a lower cash inflow from progress billings owing to delayed construction progress. Furthermore, the construction of both projects had been at the podium phase, during which no progress payments were received under the SPAs. Going forward, any draw on the ICP facility will be minimal as both projects have progressed to main building works and are expected to generate positive cashflow. The additional units sold, which were not given any credit benefit at financial close, are expected to bolster the transaction’s cashflow position.
As at end-December 2021, cash balances in the Housing Development Accounts totaling RM24 mil and the remaining gross development profit to be collected of RM481 mil (excluding amount drawn from ICP facility) are sufficient to cover the transaction’s expenses and financing obligations in respect of the Tranche 2 IMTN.
Please refer to our transaction update report, published on 1 April 2022, for further details.
Liew Kar Ling
(603) 3385 2586
Lim Chern Yit
(603) 3385 2528
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Ratings on Exsim Capital Resources Berhad