TRIplc Ventures Sdn Bhd - 2012

MARC affirms the rating of TRIplc Ventures Sdn Bhd’s (TVSB) issuance of up to RM240.0 million Senior Medium Term Notes (MTN) at AAA(fg) with a stable outlook. The enhanced rating is premised on an unconditional and irrevocable financial guarantee by Danajamin Nasional Berhad (Danajamin) which has a rating of AAA/stable from MARC. Danajamin’s rating is premised on its role as Malaysia’s first and only government-sponsored financial guarantee insurer, its solid capital base and ample liquidity.

TVSB is a single purpose vehicle which holds the concession for a PFI/PPP (private finance initiative/public private partnership) project involving the construction and maintenance of facilities for Zone 1 Phase 2 of Universiti Teknology MARA’s (UiTM) campus located in Puncak Alam, Selangor. The project’s financing structure is composed of proceeds from the RM240 million MTN, RM26.6 million of unrated Junior Notes and RM26.65 million of equity capital from TVSB’s parent company, TRIplc Berhad (TRIplc). Repayment of the MTNs would be derived solely from the project’s cash flows generated through monthly availability and maintenance charges paid by UiTM over the 20-year tenure of a credit supportive concession. MARC considers UITM’s ability to meet its payment obligations under the concession as strong given that it is principally funded by the Ministry of Higher Education.

Since MARC’s initial rating in October 2011, the contractors have completed 26.69% of the construction of the facilities for UITM’s Puncak Alam campus against scheduled completion of 18.11% as at June 10, 2012. MARC believes that the project’s construction progress to date and its fairly low complexity provides a reasonable degree of certainty that construction can be computed within the three-year time frame specified in the CA. Construction risks of the project are managed through a firm price contract totalling RM266.5 million for the bulk of project’s construction works with reputable main contractor, Sunway Construction Sdn Bhd (SUNCON). SUNCON bear the risks of construction delays and cost-overruns  under the  firm  price contract. Disbursement  risks  are  controlled through the release of MTN proceeds based on construction progress as certified by the project consultant. As at May 7, 2012, RM222.3 million remains in TVSB’s disbursement account, controlled by the facility agent, while the balance of its finance service reserve account stood at RM8.6 million.

During the maintenance phase, TVSB is entitled to availability charges (AC) which will constitute the majority of its revenue, and maintenance charges (MC) which are levied on a per square foot of gross floor area basis. Failure to meet the agreed maintenance service levels could result in penalty charges and deductions from MCs. Further reductions could be made from the next immediate or subsequent payment(s) due to TVSB in respect of MCs and/or ACs in the event the deduction of MCs is insufficient to reimburse UITM. However, deductions would only be made from the ACs after debt servicing requirements have been addressed. MARC considers TVSB’s operations phase obligations to UITM to be ordinary building maintenance tasks which the project company or sub-contractor should be able to competently undertake. TVSB’s cash flow projections indicate that the company would achieve a minimum and average pre-dividend debt service cover ratio (DSCR) of 2.12 times and 2.58 times respectively in the base case which provides the project company with the ability to absorb moderate stress arising from lower-than-expected MCs.

Noteholders are insulated from downside risks of the PFI/PPP project by virtue of Danajamin’s guarantee. Any changes in TVSB’s rating will largely be driven by a change in the financial guarantee insurer’s credit strength.

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