TRIplc Ventures Sdn Bhd - 2011

MARC has assigned the rating of AAA(fg) to TRIplc Ventures Sdn Bhd’s (TVSB) proposed issuance of up to RM240.0 million Senior Medium-Term Notes (MTN), with a stable outlook. The proceeds from the proposed MTN issuance will be used to partly fund a PFI/PPP (private finance initiative/public private partnership) project undertaken by TVSB. The project finance transaction is insulated from the credit risk of parent TRIplc Berhad (TRIplc), a PN17 company, by way of a ring-fenced structure which segregates the project company’s cash flows and assets from the parent’s bankruptcy estate. The enhanced rating is premised on an unconditional and irrevocable financial guarantee by Danajamin Nasional Berhad (Danajamin), which carries an existing rating of AAA/stable from MARC based on its role as Malaysia’s first and only government-sponsored financial guarantee insurer, its solid capital base, ample liquidity and conservative investment policies.

TVSB’s parent, TRIplc, is a public listed engineering and construction company that has been classified under PN17 by Bursa Malaysia since May 8, 2006, and is currently implementing a plan to regularise its financial condition. TRIplc’s financial challenges will not affect TVSB’s debt servicing capacity which is derived solely from a 23-year PFI/PPP concession for university infrastructure works and maintenance.

The concession is a tripartite agreement entered on May 4, 2010 (the concession agreement or CA), between TVSB, the government of Malaysia (represented by the Ministry of Higher Education) and Universiti Teknologi MARA (UiTM), under which TVSB assumes the responsibility for the design, development, construction, completion and maintenance of specified facilities and infrastructure for the Zone 1 Phase 2 project (Z1P2 project or the project) of UiTM’s campus in Puncak Alam, Selangor (UiTM Puncak Alam) for a fixed sum of RM266.5 million. TVSB will earn the majority of its revenue from availability charges from the university following the completion of construction works. MARC considers UiTM, which is principally funded by the Malaysian Ministry of Higher Education, to be a strong counterparty.

Completion and cost overruns risks during the project’s construction phase have been largely allocated to the main contractor, Sunway Construction Sdn Bhd (SUNCON). While TVSB’s related company, TRIplc Industries Sdn Bhd (TISB), and a third party contractor, Haluan Prisma Sdn Bhd, have been appointed as the project’s principal contractors, SUNCON bears the responsibility of completing the bulk of the project’s construction works under a fixed-price contract (the main contract) with strict provisions relating to the performance of duties, liquidated damages, project insurances and performance bonds. SUNCON possesses a track record of successfully completing similar projects as well as more demanding projects of greater scale and technical complexity within defined cost and schedule parameters. During the construction period, the debt servicing on outstanding notes will be supported by funds from a prefunded debt service reserve account, RM26.65 million in junior debt proceeds, and a further RM26.65 million from ordinary share subscriptions. Base case cash flow projections indicate that TVSB will achieve minimum and average DSCRs of 2.04 times and 2.70 times respectively for the tenure of the notes. MARC’s cash flow runs have also shown an average DSCR of 2.26 times for the same duration, assuming construction costs increase by 20% and construction completion is delayed by eight months.

Post construction completion and the receipt of a certificate of acceptance from UiTM, TVSB will become eligible to receive monthly payments in the form of availability charges (AC) and maintenance charges (MC) from UiTM for the remaining concession period (the maintenance period). During the maintenance period, ACs and MCs will account for all annual cash inflows from the project, which are more than sufficient to cover future Senior MTN coupon and principal payments. Under the CA, UiTM is obliged to make payment of the ACs and MCs within 30 days of TVSB submitting the respective invoices. At the same time, payments for MCs will be conditional upon TVSB meeting specified key performance indicators (KPI); any failure to meet the required KPIs will result in a deduction from MCs due or, where insufficient, payments will have to be made (after debt servicing) from ACs received. As this will be TVSB’s first PFI/PPP concession of this nature, the project finance transaction is exposed to some measure of operating risk. Nonetheless, the unconditional and irrevocable guarantee provided by Danajamin mitigates noteholders’ exposure to unallocated, residual project risks.

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