BERAPIT MOBILITY SDN BHD - 2024 |
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| Report ID | 60538900469843 | Popularity | 1222 views 56 downloads | |||||
| Report Date | Sep 2024 | Product | ||||||
| Company / Issuer | Berapit Mobility Sdn Bhd | Sector | Infrastructure & Utilities | |||||
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| Rationale |
Rating action MARC Ratings has assigned a preliminary rating of AAIS to Berapit Mobility Sdn Bhd’s (BMSB) Sustainability Islamic Medium-Term Notes Programme (sukuk programme) of up to RM1.5 billion. The outlook on the rating is stable. Rationale The rating reflects the size and predictability of the operating cash flow under the long lease agreements of 25 years, the protective features of the ring-fenced financing structure, and a very strong lease counterparty in the form of the federal government statutory body Railway Assets Corporation (RAC). The rating also factors in parent and project sponsor SMH Rail Sdn Bhd’s strong capabilities in rolling stock manufacturing, assembly, and maintenance, repair and operations (MRO), as well as its healthy 20-year track record of timely project completion. These strengths are moderated by contract termination risk, execution risk, as well as potential delays in receipt of lease payments. Under the transaction, BMSB will purchase and refurbish/replace 50 locomotives (including six spares) and 246 wagons from RAC under sale-and-leaseback agreements. This will be partly financed by proceeds from the rated sukuk, with lease payment streams from RAC forming the source of repayments. BMSB’s average projected annual operating cash flow of RM101.9 million is more than sufficient to meet sukuk principal repayments for the first 15 years of the lease due to higher lease fee rates during this period. This provides headroom for BMSB to build up its cash balances for later repayments, when the second tier of lower lease rates kicks in. Cash flow predictability is underpinned by BMSB’s entitlement to at least 24 days of monthly lease payments, as long as it meets contracted performance requirements for rolling stock availability. To this end, SMH Rail’s experience in rolling stock manufacturing and MRO would ensure BMSB has the capacity to maintain the rolling stock assets to meet the required availability and performance standards. To further mitigate risks of loss or damages, including force majeure, to the wagons and locomotives, BMSB plans to secure industry-standard mobile plant and equipment policies on its locomotives and wagons. The lease payments will also be ring-fenced in designated accounts. Under the base case projections, which assume BMSB’s minimum lease entitlement as well as a six-month collection cycle, minimum and average finance service coverage ratios (FSCR) would stand at 1.50x and 1.62x. The rating agency notes that there is potential upside to cash flows if the company’s rolling stock records higher utilisation rates (above 80%) and/or collections from RAC are faster than expected. Under MARC Ratings’ sensitised case, which considers a one-month delay in project delivery, the FSCR is projected to remain above 1.50x save in the initial years (FY2026-FY2028). In this regard, the rating agency takes comfort from SMH Rail’s undertaking to maintain a minimum FSCR of 1.50x at BMSB throughout the sukuk tenure. This would entail minor top-ups totalling around RM25.0 million to maintain FSCR levels at 1.50x between FY2026 and FY2028. SMH Rail is well positioned in the industry, having completed US$387.2 million in projects to date (with around 65% from domestic projects). The group derives its technical expertise from collaborations with global original equipment manufacturers (OEM) General Electric Company, Siemens AG, Hyundai-Rotem Co., Amsted Rail Company, Inc., Wabtec Corporation, Caterpillar Inc., and Medha Servo Drives Pvt. Ltd. Key components for BMSB are being imported from these manufacturers; given their vast experience, technology risk is deemed low. Including this RM6.9 billion contract with RAC as well as a separate RM600.0 million contract for re-conditioning work on Mass Rapid Transit (MRT) trains, its order book stood at around RM8.7 billion (with around 88% from domestic projects), with a tender book of around RM2.2 billion (including bids for a RM600.0 million contract to conduct recurring MRO work on Keretapi Tanah Melayu Berhad (KTMB) trains). For financial year ended June 30, 2023 (FY2023), SMH Rail recorded revenue of RM388.1 million (FY2022: RM302.1 million). The scale of earnings growth, however, has been more modest, mainly due to higher interest costs as the group took on more borrowings to fund working capital and capex requirements for its new contracts. Our assessment on the group’s borrowings position, which increased to RM429.2 million as at end-December 2023, recognises the predictability of cash flows from its ongoing contracts and the good visibility of the deleveraging path as earnings gradually improve. MARC Ratings considers contract termination risk to be low considering the importance of rolling stock to RAC and the limited expertise available to undertake projects of this nature given the high barriers to entry in terms of technology, client relationships and industry qualifications. The rating agency also views the demand for rail freight as positive in the long term; as a mode of transport with one of the smallest carbon footprints, rail freight will likely benefit from policies to reduce emissions and energy consumption. Rating outlook The stable outlook reflects the underlying stability of BMSB’s ring-fenced business model, and MARC Ratings’ expectation of a sustained operating performance supported by long-term contracted revenue with a strong counterparty in the form of RAC and ultimately the government. Rating trajectory Upside/downside trajectory A positive rating action is unlikely in the short term. Any upgrade will require significant strengthening of coverage metrics. Unexpected delays in rolling stock delivery and cash collection, operating underperformance, and/or a material increase in operating costs that would have the impact of impairing BMSB’s capacity to meet its debt service obligations could lead to a downgrade of and/or revision in the rating outlook. Rating pressure would also arise in the event of a significant change in, or restructuring of, RAC such that there is a weakening in our assessment of counterparty strength. Key strengths
Key risks
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