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RAM Ratings assigns preliminary rating of AA3/Stable to Exsim Capital’s proposed Tranche 4 IMTN
Published on 07 Apr 2023.
RAM Ratings has assigned a preliminary issue rating of AA3/Stable to the proposed RM[300] mil fourth issuance (Tranche 4 IMTN) under Exsim Capital Resources Berhad’s (Exsim Capital or the Issuer) RM2 bil Sukuk Musharakah Programme (IMTN Programme).
The IMTN Programme allows for the monetisation of progress billings by Exsim Development Sdn Bhd or its subsidiaries (Exsim Group or the Group), where the Group from time to time sells to the Issuer its beneficial interest under respective sale and purchase agreements (SPAs) executed with buyers for specific property development projects. Exsim Capital is a subsidiary and special-purpose vehicle of Exsim Group.
The Tranche 4 IMTN will be backed by future SPA receipts from The Fiddlewoodz (the Project), located in KL Metropolis, comprising 679 residential units. Cashflow from the SPAs will be used to pay remaining construction costs of the Project as well as to meet the Issuer’s fees, expenses and obligations in respect of the Tranche 4 IMTN. While the take-up rate for the Project as at end-February 2023 was 83.9%, Exsim Capital will issue Tranche 4 IMTN only when the take-up rate reaches 99%.
Concurrent with the Tranche 4 IMTN, Exsim Capital will have up to RM[65] mil unrated Sukuk Murabahah ICP (Tranche 4 ICP) available under the new proposed RM1 bil Sukuk Murabahah ICP Programme (New ICP Programme). The New ICP Programme will replace the Existing ICP Programme which will expire on 6 March 2026. The Tranche 4 ICP will act as a liquidity line to cover transitory cash shortfalls in meeting profit payments and senior expenses in respect of the Tranche 4 IMTN and construction cost arising from timing mismatch between the Project’s development costs and progress payment receipts. The Tranche 4 ICP will be underwritten by a financial institution rated AAA/Stable/P1 by RAM Ratings, to be identified prior to issuance, and will not be guaranteed.
In assigning the preliminary issue rating for the Tranche 4 MTN, we have considered the targeted 99% take-up rate, a sizeable proportion of which are end-financed by financial institutions. We also factored in various stress scenarios in our cashflow analysis. These assumptions include buyer defaults and drop in property prices in the event of recoveries, a 3% construction cost overrun and a four-month delay in receipt of progress payments. Our cashflow analysis shows that the projected remaining net cashflow of RM[415.8] mil as at end-February 2023 is sufficient to meet timely payment of all expenses, obligations and full repayment of the Tranche 4 IMTN by its legal maturity date.
The terms of the transaction require the appointment of an independent project certifier (IPC) to monitor the Project’s progress and expenses. If a trigger event occurs, the Security Trustee can exercise the step-in right to appoint a project management company (PMC) and/or transition the IPC to assume the role of the PMC to ensure completion. We believe the rigorous local housing regulations and structural features of the transaction will ensure strict adherence to the intended cashflow waterfall.
Since construction began on 1 April 2022, various pandemic-induced time extensions have been granted by the developer to the contractor and by the Ministry of Housing to the developer. As at 5 March 2023, construction progress was marginally ahead of schedule and remained on track to be completed by 5 September 2025 under the revised work schedule. The IPC views it unlikely that the Project will incur any cost overrun beyond the fixed-price lump-sum contract amount and expects minimal disruption in labour and/or raw material supply. The timing of materials delivery is however critical, given narrow accessibility to the project site. We believe the seven-month time buffer between the developer’s targeted completion date (5 September 2025) and the legal vacant possession date (30 March 2026) provides sufficient buffers against any further construction delays.
Material changes in the underlying assumptions may result in a change in the preliminary rating. These include the transaction structure, distribution of buyer profiles, construction progress, terms of the underwriting facilities, and principal terms and conditions of the transaction. The assignment of a final rating will be subject to RAM’s satisfactory review of the final transaction documents and relevant legal and tax opinions.
Analytical contacts
Joel Thum
(603) 3385 2517
joel@ram.com.my
Lim Chern Yit
(603) 3385 2528
chernyit@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
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