PUTRAJAYA BINA SDN BHD - 2018

MARC has affirmed its AAA_IS rating with a stable outlook on Putrajaya Bina Sdn Bhd’s (PBSB) RM1.58 billion Islamic Medium-Term Notes (Sukuk Wakalah) Programme.

PBSB is developing nine blocks of government office buildings and one block of shared facilities in Parcel F, Precinct 1, Putrajaya under a 28-and-a-half-year concession agreement with the Malaysian government. The RM1.9 billion development is being largely funded by proceeds from the issuance.

The affirmed rating reflects the credit strength of the Malaysian government as the paymaster of availability charges (AC) and maintenance charges (MC) commencing a month after the receipt of the Certificate of Acceptance until the completion of the 25-year asset maintenance phase. The AC payments of RM215.6 million per annum are deemed sufficient to meet PBSB’s financial obligations under the rated programme. During the three-and-a-half-year construction period, an irrevocable and unconditional Letter of Support (LOS) provided by PBSB’s parent Putrajaya Holdings Sdn Bhd (PJH) will address financial obligations and cost overruns during this period. PJH currently has a long-term rating of AAA/stable from MARC.

According to PBSB, the project is 75.3% complete as at end-July 2018 and is expected to be completed by end-January 2019. Construction is being undertaken by Sunway Construction Sdn Bhd under a fixed-price contract, which mitigates cost overrun risks. Upon completion, the office buildings, which will have a total gross built-up area of about 4.8 million sq ft will be tenanted by government departments and statutory bodies including Suruhanjaya Perkhidmatan Awam and Jabatan Audit Negara.

The AC payments from the government to PBSB represent the rental payments while the MC payments of up to RM69.2 million per annum are subject to PBSB meeting specified key performance indicators (KPI) for maintenance services of the buildings. In this regard, MARC is of the view that PJH has the capability to manage and operate the facilities in accordance with the concession during the maintenance phase. Termination risk is alleviated through the requirement to compensate PBSB with an amount equal to the net present value of the future AC payments at the time of termination.

PBSB is required to maintain funds equivalent to the finance service amount, one month ahead of its due date at all times. Dividend payments or shareholders’ advances are prohibited if the finance service cover ratio (FSCR) is below the minimum required level of 1.5 times post-distribution. During this review, MARC’s sensitivity analysis on projected cash flows shows that PBSB’s FSCR will range between 2.9 times and 11.9 times throughout the asset management period.

The stable outlook reflects MARC’s expectations on the receipt of timely and predictable payments from the Malaysian government and that the credit strength of PJH will be maintained at its current rating level during the construction period.

Major Rating Factors

Strengths

• Predictable cash flows upon project completion; and
• Support from strong creditworthy parent during the construction phase.

Challenge/Risk

• Timely construction completion.