Monday, Jan 07, 2002
Malaysian Rating Corporation Berhad (MARC) has assigned a short term rating of MARC-3 ID (MARC 3, Islamic Debt) in respect of Teratas Dagang Sdn Bhd’s (TDSB) proposed RM25.0 million Murabahah Underwritten Notes Issuance Facility (MUNIF). Positive factors supporting the rating are the off-taker of the project which is the government/Kementerian Dalam Negeri (KDN) and the underlying issue structure, in which, payments from progress billings have been earmarked for the redemption of the MUNIF issue through a sinking fund. The scheduled redemption which effectively reduces the facility limit on each subsequent year or annual anniversary from the date of drawdown as well as the minimum balances required to be maintained in the Sinking Fund Account mitigate refinancing risk. The rating, is however, moderated by TDSB’s high proforma debt leverage, lack of track record and its vulnerability to delays in construction and completion of the project.
Incorporated on 12 May 1994 under the Companies Act 1965, TDSB’s principal activity is the construction of housing or residential projects and property development. A wholly-owned Bumiputera company, it is registered and classified as a Housing Development Company (Syarikat Pemaju Perumahan). In January 2001, TDSB was awarded by KDN to undertake the development and construction of 231 housing units and an administrative building for Polis DiRaja Malaysia (PDRM) in Larut Matang, Mukim Kemunting, Taiping, Perak (the Project).
The RM25 million MUNIF issue will be backed by the contract value of the Project worth RM31.238 million and the balance of the lands owned by TDSB that is not surrendered to the government pertinent to the Project. This provides adequate security coverage to the MUNIF holders. KDN being the paymaster, substantially minimises the credit/counterparty risk. Additionally, KDN has issued a letter of undertaking agreeing to the assignment of the proceeds of the Project for the purpose of redeeming the MUNIF.
Effective 1 April 2001, the government has implemented a new payment procedure for projects overseen by the Project Management Consultant (PMC), whereby the PMC will make all progress billings/claims on behalf of the contractor direct to the Jabatan Akauntan Negara with the objective to expedite payments to contractors. With respect to the Project, the inspection and verification of all progress billings/claims will be undertaken by both the PMC and KDN. According to the Project’s S&P, TDSB will receive payments in not more than thirty (30) days from the date KDN receives such claims.
The presence of a Security Agent/Arranger, who will act as joint signatory to the Disbursement and Project accounts, provides a degree of confidence in ensuring the timely construction and completion of the Project. Investment risk is also mitigated as funds in the SFA will only be invested in authorised/permissible investments.
TDSB was previously a dormant company until FY1999 in which it was involved in the construction supplies business, generating a turnover of about RM600,000 and subsequently registered a gross profit of RM114,539 on the back of RM1.3 million turnover in fiscal 2000. Based on FY2000 financials, it had already commenced the preliminary works or planning of the Project.
TDSB’s proforma debt-equity position would be as high as 8.3 times upon the issuance of the MUNIF, but the gearing position is expected to improve significantly to 5.6 times by the 13th month and subsequently to 3 times by the 25th month - from the issuance date upon the scheduled MUNIF redemption (provided that it does not incur additional indebtedness which requires the prior written consent of the Facility Agent). The relatively good profit margin for the Project is thus expected to result in improvement in TDSB’s financial position, translating into better cash flow protection.
Incorporated on 12 May 1994 under the Companies Act 1965, TDSB’s principal activity is the construction of housing or residential projects and property development. A wholly-owned Bumiputera company, it is registered and classified as a Housing Development Company (Syarikat Pemaju Perumahan). In January 2001, TDSB was awarded by KDN to undertake the development and construction of 231 housing units and an administrative building for Polis DiRaja Malaysia (PDRM) in Larut Matang, Mukim Kemunting, Taiping, Perak (the Project).
The RM25 million MUNIF issue will be backed by the contract value of the Project worth RM31.238 million and the balance of the lands owned by TDSB that is not surrendered to the government pertinent to the Project. This provides adequate security coverage to the MUNIF holders. KDN being the paymaster, substantially minimises the credit/counterparty risk. Additionally, KDN has issued a letter of undertaking agreeing to the assignment of the proceeds of the Project for the purpose of redeeming the MUNIF.
Effective 1 April 2001, the government has implemented a new payment procedure for projects overseen by the Project Management Consultant (PMC), whereby the PMC will make all progress billings/claims on behalf of the contractor direct to the Jabatan Akauntan Negara with the objective to expedite payments to contractors. With respect to the Project, the inspection and verification of all progress billings/claims will be undertaken by both the PMC and KDN. According to the Project’s S&P, TDSB will receive payments in not more than thirty (30) days from the date KDN receives such claims.
The presence of a Security Agent/Arranger, who will act as joint signatory to the Disbursement and Project accounts, provides a degree of confidence in ensuring the timely construction and completion of the Project. Investment risk is also mitigated as funds in the SFA will only be invested in authorised/permissible investments.
TDSB was previously a dormant company until FY1999 in which it was involved in the construction supplies business, generating a turnover of about RM600,000 and subsequently registered a gross profit of RM114,539 on the back of RM1.3 million turnover in fiscal 2000. Based on FY2000 financials, it had already commenced the preliminary works or planning of the Project.
TDSB’s proforma debt-equity position would be as high as 8.3 times upon the issuance of the MUNIF, but the gearing position is expected to improve significantly to 5.6 times by the 13th month and subsequently to 3 times by the 25th month - from the issuance date upon the scheduled MUNIF redemption (provided that it does not incur additional indebtedness which requires the prior written consent of the Facility Agent). The relatively good profit margin for the Project is thus expected to result in improvement in TDSB’s financial position, translating into better cash flow protection.