Thursday, Oct 31, 2002
Malaysian Rating Corporation Berhad (MARC) has affirmed long-term ratings of A-ID (A minus, Islamic debt) to tranche 1 of Kuala Lumpur Sentral Sdn Bhd’s (KLSSB) Al-Bai Bithaman Ajil Islamic debt securities (BaIDS) facility of RM120 million, and AID(s) (A, Islamic debt with liquidity support) to tranches 2A, 2B, 3, 4A and 4B of its BaIDS facility totalling RM800 million.
The rating affirmation of tranches 2A, 2B, 3, 4A and 4B reflects the credit enhancement provided by Bank Pembangunan & Infrastruktur Malaysia Berhad’s (BPIMB) standby revolving credit facility supporting these tranches and the tight underlying issue structure. The affirmation of the rating for tranche 1, meanwhile, is based upon the secured property sales backing the debt issue; moderated by the company’s continuous exposure to the credit and liquidity risks associated with the project and its high debt leverage.
Under a 1997 Concession Agreement, Kuala Lumpur Sentral Sdn Bhd (KLSSB) was awarded the design and construction of the Stesen Sentral Kuala Lumpur on railway reserve land formerly known as the ‘Brickfields Yard’. In return, the company was granted the right to commercially develop the balance 62 acres of freehold land (including approximately 2 acres of land to be developed for infrastructure purposes). Stesen Sentral serves as a transportation hub; providing terminals for the commuter and inter-city trains, Light Rail Transit system and the airport express rail network. Construction of the station was completed in December 2000 and the station commenced operation in April 2001.
Kuala Lumpur Sentral’s commercial development is divided into four phases. Phase 1 comprises, amongst others, office towers, condominiums and hotels; the entire development of phase 1 is expected to be completed in 2006, two years later than the earlier projection in 2004. As at 31 May 2002, an aggregate RM744.35 million of properties have been sold under this phase, of which RM120.97 million remained outstanding (excluding an amount of RM120.6 million under an option granted to a purchaser in respect of two parcels of land under lot G). Proceeds from the remaining billings will be credited into a specified sinking fund account and utilized for the redemption of the primary and secondary notes under tranche 1 of the BaIDS issue. In the event of a shortfall in the account, the required amount can be drawn from a liquidity buffer, equivalent to one secondary note, maintained in a finance service reserve account (FSRA).
Phases 2, 3 and 4 constitute the future development of office towers over a 10-year period from 2003 to 2012. Given the large overhang of office space in the Klang Valley, the market risk associated with the development is significant. Sales proceeds from future launches will form the principal source of redemption of the notes issued under Tranches 2A, 2B, 3, 4A and 4B. Liquidity risk under the debt payment structure is mitigated through the establishment of two levels of liquidity protection in the issue structure. The first level is the secondary note liquidity buffer prefunded from the issue proceeds and maintained in a FSRA under each tranche. All the FSRAs have been drawndown either once or twice to date. The second level is BPIMB’s standby revolving credit facility that can be drawndown to cover any shortfall in funding required for the redemption of either secondary or primary notes under the various tranches. The standby revolving credit facility supports an elaborate payment waterfall structured under Tranches 2A, 2B, 3, 4A and 4B, with separate sinking funds and FSRAs set up under each tranche.
KLSSB’s pre-tax profit rose by more than 60 times to RM35.1 million in FY August 2001 (FY2000: RM0.56 million) on the back of more than 350% increase in turnover to RM222.4 million (FY2000: RM48.8 million); attributed to the progressive billings received from the development of phase 1. Following the issuance of the BaIDS facility in April 2001, debt leverage of the company weakened to almost 4 times in FY2001. Fresh equity injections are projected to be made over the tenure of the facility to keep the debt-equity ratio within the covenanted limits. The project cash flow is vulnerable to adverse developments in the property market and thus requires the support of the standby revolving credit line to ensure the timely repayment of the BaIDS facility.
The rating affirmation of tranches 2A, 2B, 3, 4A and 4B reflects the credit enhancement provided by Bank Pembangunan & Infrastruktur Malaysia Berhad’s (BPIMB) standby revolving credit facility supporting these tranches and the tight underlying issue structure. The affirmation of the rating for tranche 1, meanwhile, is based upon the secured property sales backing the debt issue; moderated by the company’s continuous exposure to the credit and liquidity risks associated with the project and its high debt leverage.
Under a 1997 Concession Agreement, Kuala Lumpur Sentral Sdn Bhd (KLSSB) was awarded the design and construction of the Stesen Sentral Kuala Lumpur on railway reserve land formerly known as the ‘Brickfields Yard’. In return, the company was granted the right to commercially develop the balance 62 acres of freehold land (including approximately 2 acres of land to be developed for infrastructure purposes). Stesen Sentral serves as a transportation hub; providing terminals for the commuter and inter-city trains, Light Rail Transit system and the airport express rail network. Construction of the station was completed in December 2000 and the station commenced operation in April 2001.
Kuala Lumpur Sentral’s commercial development is divided into four phases. Phase 1 comprises, amongst others, office towers, condominiums and hotels; the entire development of phase 1 is expected to be completed in 2006, two years later than the earlier projection in 2004. As at 31 May 2002, an aggregate RM744.35 million of properties have been sold under this phase, of which RM120.97 million remained outstanding (excluding an amount of RM120.6 million under an option granted to a purchaser in respect of two parcels of land under lot G). Proceeds from the remaining billings will be credited into a specified sinking fund account and utilized for the redemption of the primary and secondary notes under tranche 1 of the BaIDS issue. In the event of a shortfall in the account, the required amount can be drawn from a liquidity buffer, equivalent to one secondary note, maintained in a finance service reserve account (FSRA).
Phases 2, 3 and 4 constitute the future development of office towers over a 10-year period from 2003 to 2012. Given the large overhang of office space in the Klang Valley, the market risk associated with the development is significant. Sales proceeds from future launches will form the principal source of redemption of the notes issued under Tranches 2A, 2B, 3, 4A and 4B. Liquidity risk under the debt payment structure is mitigated through the establishment of two levels of liquidity protection in the issue structure. The first level is the secondary note liquidity buffer prefunded from the issue proceeds and maintained in a FSRA under each tranche. All the FSRAs have been drawndown either once or twice to date. The second level is BPIMB’s standby revolving credit facility that can be drawndown to cover any shortfall in funding required for the redemption of either secondary or primary notes under the various tranches. The standby revolving credit facility supports an elaborate payment waterfall structured under Tranches 2A, 2B, 3, 4A and 4B, with separate sinking funds and FSRAs set up under each tranche.
KLSSB’s pre-tax profit rose by more than 60 times to RM35.1 million in FY August 2001 (FY2000: RM0.56 million) on the back of more than 350% increase in turnover to RM222.4 million (FY2000: RM48.8 million); attributed to the progressive billings received from the development of phase 1. Following the issuance of the BaIDS facility in April 2001, debt leverage of the company weakened to almost 4 times in FY2001. Fresh equity injections are projected to be made over the tenure of the facility to keep the debt-equity ratio within the covenanted limits. The project cash flow is vulnerable to adverse developments in the property market and thus requires the support of the standby revolving credit line to ensure the timely repayment of the BaIDS facility.