Wednesday, Aug 07, 2002
Malaysian Rating Corporation Berhad (MARC) has affirmed Commerce Dot Com’s (CDC) RM100 million Al-Istisna Facility at A-ID (Islamic Debt). However, the rating agency has placed the rating on negative outlook.
The rating affirmation reflects Commerce Dot Com Sdn Bhd’s (CDC) position as the exclusive provider of the electronic procurement system for the government and a tight underlying issue structure for the Islamic bonds facility. The rating is, however, moderated by the company’s high debt level and unproven future earnings generation. The rating outlook on the facility is negative given the delay in the completion of the first two of the four phases of the procurement system, which is affecting the financial performance of CDC. The maintenance of the present rating, hence, is subject to the company’s ability to mitigate the increase in financial risk.
Under a Concession Contract between the Malaysian Government and CDC in July 1999, CDC was granted the exclusive right to design, implement and operate the government’s electronic procurement services, known as e-Perolehan, for a period of 94 months. CDC is jointly owned by Puncak Semangat Sdn Bhd (PSSB) and NTT Data Corporation (Japan) on the basis of 81:19. PSSB is engaged primarily in the business of information technology and e-commerce while its Japanese partner, NTT, is the largest IT system integrator in Japan and the second largest in the world.
The ePerolehan project represents one of the first and largest pilot applications under the eGovernment Multimedia Super Corridor (MSC) flagship to go live. The ePerolehan system enables the government to conduct through electronic means the procurement of supply and services through central contract, tender, quotation and direct purchase. Project implementation is undertaken in four phases, involving about 3,500 government procurement centres and 26,000 government-registered suppliers. CDC is currently implementing phase three, having completed the first and second phase in April 2001 and May 2002 respectively compared to the initial completion dates of January 2001 and January 2002 respectively. The time frame of the project has been pushed back by four months due to the slow down in integrating CDC’s ePerolehan with e-SPKB, an existing electronic payment system of the Accountant General’s (AG) and the delay in getting the proof of concept (POC) from the government for phase 1.
Upon full operation of ePerolehan, CDC expects over 90% income to be derived from transaction fees, charged at a rate of 0.8% on the value of each completed purchase order, subject to a maximum fee of RM9,600 per order. The fee will be deducted from the total purchase order amount and paid to CDC. This, in turn, is dependent on how quickly transition from the traditional means of procurement to electronic procurement is achieved by the government. Other income earned by the company are the bi-annual subscription fee of RM300 levied on each registered supplier and catalogue development & hosting fees.
For FYE December 2001, CDC posted a pre-tax loss of RM11.19 million (FYE 2000: negative RM5.43 million) on the back of a revenue of about RM4.38 million. This was due to a substantial increase in financing costs. Based on the six-month interim results for FYE 2002, MARC does not expect CDC to achieve the targeted revenue and profit of RM38.4 million and RM10.7 million respectively. CDC’s cash flow position is expected to remain in deficit during the project build or development stage and delay in the rolling out of the first two phases of ePerolehan will put pressure on its cash flow position. The payment of secondary bonds due (during the build or development stage) has been prefunded from the bonds proceeds. In addition, a liquidity buffer equivalent to 10% of the amount of the bonds issued (RM10 million) is also maintained in the Finance Service Reserve Account. Should the delay in the implementation of the ePerolehan persist beyond FYE 2003, MARC expects that CDC would have to draw upon the liquidity buffer for the redemption of the secondary and primary bonds.
CDC’s debt leverage stood at 6.10 times in FYE 2001, following the increase in its paid-up capital to RM33.6 million (FYE 2000: RM24.0 million). For the first six months of FYE 2002, debt leverage had weakened to 8.63 times. CDC will have to rely on shareholders’ support in order to comply with the finance to equity ratio covenant of 3.75 times by FYE 2002.
The rating affirmation reflects Commerce Dot Com Sdn Bhd’s (CDC) position as the exclusive provider of the electronic procurement system for the government and a tight underlying issue structure for the Islamic bonds facility. The rating is, however, moderated by the company’s high debt level and unproven future earnings generation. The rating outlook on the facility is negative given the delay in the completion of the first two of the four phases of the procurement system, which is affecting the financial performance of CDC. The maintenance of the present rating, hence, is subject to the company’s ability to mitigate the increase in financial risk.
Under a Concession Contract between the Malaysian Government and CDC in July 1999, CDC was granted the exclusive right to design, implement and operate the government’s electronic procurement services, known as e-Perolehan, for a period of 94 months. CDC is jointly owned by Puncak Semangat Sdn Bhd (PSSB) and NTT Data Corporation (Japan) on the basis of 81:19. PSSB is engaged primarily in the business of information technology and e-commerce while its Japanese partner, NTT, is the largest IT system integrator in Japan and the second largest in the world.
The ePerolehan project represents one of the first and largest pilot applications under the eGovernment Multimedia Super Corridor (MSC) flagship to go live. The ePerolehan system enables the government to conduct through electronic means the procurement of supply and services through central contract, tender, quotation and direct purchase. Project implementation is undertaken in four phases, involving about 3,500 government procurement centres and 26,000 government-registered suppliers. CDC is currently implementing phase three, having completed the first and second phase in April 2001 and May 2002 respectively compared to the initial completion dates of January 2001 and January 2002 respectively. The time frame of the project has been pushed back by four months due to the slow down in integrating CDC’s ePerolehan with e-SPKB, an existing electronic payment system of the Accountant General’s (AG) and the delay in getting the proof of concept (POC) from the government for phase 1.
Upon full operation of ePerolehan, CDC expects over 90% income to be derived from transaction fees, charged at a rate of 0.8% on the value of each completed purchase order, subject to a maximum fee of RM9,600 per order. The fee will be deducted from the total purchase order amount and paid to CDC. This, in turn, is dependent on how quickly transition from the traditional means of procurement to electronic procurement is achieved by the government. Other income earned by the company are the bi-annual subscription fee of RM300 levied on each registered supplier and catalogue development & hosting fees.
For FYE December 2001, CDC posted a pre-tax loss of RM11.19 million (FYE 2000: negative RM5.43 million) on the back of a revenue of about RM4.38 million. This was due to a substantial increase in financing costs. Based on the six-month interim results for FYE 2002, MARC does not expect CDC to achieve the targeted revenue and profit of RM38.4 million and RM10.7 million respectively. CDC’s cash flow position is expected to remain in deficit during the project build or development stage and delay in the rolling out of the first two phases of ePerolehan will put pressure on its cash flow position. The payment of secondary bonds due (during the build or development stage) has been prefunded from the bonds proceeds. In addition, a liquidity buffer equivalent to 10% of the amount of the bonds issued (RM10 million) is also maintained in the Finance Service Reserve Account. Should the delay in the implementation of the ePerolehan persist beyond FYE 2003, MARC expects that CDC would have to draw upon the liquidity buffer for the redemption of the secondary and primary bonds.
CDC’s debt leverage stood at 6.10 times in FYE 2001, following the increase in its paid-up capital to RM33.6 million (FYE 2000: RM24.0 million). For the first six months of FYE 2002, debt leverage had weakened to 8.63 times. CDC will have to rely on shareholders’ support in order to comply with the finance to equity ratio covenant of 3.75 times by FYE 2002.