Thursday, Mar 30, 2006
MARC has assigned ratings of AAA/MARC-1 rating to Valid Ventures Berhad’s (VVB) proposed issuance of RM510.0 million fixed-rate serial bonds and up to RM85.0 million Commercial Papers/Medium-Term Notes Programme (CP/MTN). The ratings reflect the Government of Malaysia’s (GOM) backing of Port Kelang Authority (PKA), a statutory authority, to undertake the GOM’s project; the national importance of the project evidenced by the letter of support issued by the GOM in favour of the Trustee and protective issue structure whereby tight control over withdrawals from the disbursement account, coupled with features which substantially mitigate liquidity risk throughout the tenure of the proposed bonds and CP/MTN.
Valid Ventures Berhad (VVB) is a wholly owned subsidiary of Kuala Dimensi Sdn Bhd (KDSB), incorporated solely for the purpose of issuing RM510.0 million of bonds and up to RM85.0 million CP/MTN. The bond proceeds will be utilized to finance the additional development works within the Port Klang Free Zone/Transshipment Megahub (PKFZ) comprising of junction improvements, construction of electrical infrastructure and construction of a business class hotel (Additional Developments Works), with a total contract value estimated at RM510.38 million excluding the variation order. The total variation order for the Additional Development Works, if any, will be computed upon completion of the project and will be financed by the issuance of CP/MTN of up to RM85.0 million.
KDSB was appointed by PKA as the turnkey developer to design, build, complete and finance the development of a 999.5-acre land in Pulau Indah into PKFZ via a Development Agreement dated 27th February 2003 and Supplemental Agreements (SA) dated 26th May 2003 and 27th March 2004. A SA dated 30 November 2005 was executed between PKA and KDSB for the Additional Development Works encompassing junction improvements, construction of an electrical infrastructure and construction of a business class hotel. The total payment from PKA is estimated to be RM677.1 million (including professional fees, variation order and interest accrued on works done). Payments from PKA will be on a deferred payment basis, amounting to RM150.0 million per annum from 2007 to 2009; RM120.0 million in 2010 and the last payment in 2011 comprising of interest accrued on balance payable to KDSB at 5.0% per annum, professional fees and any variation order, all of which will be assigned to VVB under an absolute legal assignment; the assignment of which forms a security to the bondholders and CP/MTN holders. MARC notes that the payment in 2011 is subject to the progress of Additional Development Works whereby the amount will reduce should there be any construction delays. Construction works must be carried out for a period of 24 months for junction improvements; 12 months for electrical infrastructure works; and 18 months for the business class hotel. Based on an 18-month construction timeframe expected by KDSB and an estimated variation order of RM85.51 million, the last payment instalment from PKA will amount to approximately RM107.1 million.
Design and construction risks in respect of the development works are considered manageable given the moderate technical nature of such works. Under the structure, cashflow leakages are minimised as the withdrawal of the bonds and CP/MTN proceeds from the Disbursement Account for payments to the turnkey developer, KDSB, are subject to the submission of invoices/ documentary evidence on works done, certified by an independent consultant on a monthly basis and acknowledged by PKA. Given the fixed sum contract entered with the main contractor, being Wijaya Baru Sdn Bhd, any cost overruns shall be assumed by the contractor. In the event of non-performance by the appointed contractor, VVB has the right to appoint a substitute contractor to resume, complete and deliver the site to PKA as provided under the absolute legal assignment. Notwithstanding, as security against KDSB’s performance as the turnkey developer, KDSB is required to provide a corporate guarantee to VVB for the performance of the Additional Development Works amounting to 5% of the total contract sum including variation order.
The setting up of an Escrow Account (EA) will further mitigate construction risk, whereby KDSB is required to progressively remit up to RM47.6 million into the EA. The purpose of the EA is to cover for any potential shortfall in the Collection Account in the event of any delays in construction beyond the 18-month timeframe up to 33 months; and to cover for any increase in interest obligations under the CP/MTN. Upon completion of the Additional Development Works, KDSB will ensure that a balance of RM6.5 million remains in the EA to cover for any increase in funding costs.
During the period, ie from the date of issuance of the bonds until July 2007 (initial payment from PKA), interest servicing obligations in respect of the bonds will be covered by funds prefunded out of the bonds equivalent to more than twelve months but less than 18 months, thus, mitigating liquidity risk during the said period. Liquidity risk is also mitigated by the maintenance of a six months coupon/interest for the bonds and CP/MTN in the Debt Service Reserve Account and; a three-month timing buffer between the projected date of receipt of funds from PKA (every July) and the scheduled principal repayments of the bonds (every November) from 2007 to 2011.
Valid Ventures Berhad (VVB) is a wholly owned subsidiary of Kuala Dimensi Sdn Bhd (KDSB), incorporated solely for the purpose of issuing RM510.0 million of bonds and up to RM85.0 million CP/MTN. The bond proceeds will be utilized to finance the additional development works within the Port Klang Free Zone/Transshipment Megahub (PKFZ) comprising of junction improvements, construction of electrical infrastructure and construction of a business class hotel (Additional Developments Works), with a total contract value estimated at RM510.38 million excluding the variation order. The total variation order for the Additional Development Works, if any, will be computed upon completion of the project and will be financed by the issuance of CP/MTN of up to RM85.0 million.
KDSB was appointed by PKA as the turnkey developer to design, build, complete and finance the development of a 999.5-acre land in Pulau Indah into PKFZ via a Development Agreement dated 27th February 2003 and Supplemental Agreements (SA) dated 26th May 2003 and 27th March 2004. A SA dated 30 November 2005 was executed between PKA and KDSB for the Additional Development Works encompassing junction improvements, construction of an electrical infrastructure and construction of a business class hotel. The total payment from PKA is estimated to be RM677.1 million (including professional fees, variation order and interest accrued on works done). Payments from PKA will be on a deferred payment basis, amounting to RM150.0 million per annum from 2007 to 2009; RM120.0 million in 2010 and the last payment in 2011 comprising of interest accrued on balance payable to KDSB at 5.0% per annum, professional fees and any variation order, all of which will be assigned to VVB under an absolute legal assignment; the assignment of which forms a security to the bondholders and CP/MTN holders. MARC notes that the payment in 2011 is subject to the progress of Additional Development Works whereby the amount will reduce should there be any construction delays. Construction works must be carried out for a period of 24 months for junction improvements; 12 months for electrical infrastructure works; and 18 months for the business class hotel. Based on an 18-month construction timeframe expected by KDSB and an estimated variation order of RM85.51 million, the last payment instalment from PKA will amount to approximately RM107.1 million.
Design and construction risks in respect of the development works are considered manageable given the moderate technical nature of such works. Under the structure, cashflow leakages are minimised as the withdrawal of the bonds and CP/MTN proceeds from the Disbursement Account for payments to the turnkey developer, KDSB, are subject to the submission of invoices/ documentary evidence on works done, certified by an independent consultant on a monthly basis and acknowledged by PKA. Given the fixed sum contract entered with the main contractor, being Wijaya Baru Sdn Bhd, any cost overruns shall be assumed by the contractor. In the event of non-performance by the appointed contractor, VVB has the right to appoint a substitute contractor to resume, complete and deliver the site to PKA as provided under the absolute legal assignment. Notwithstanding, as security against KDSB’s performance as the turnkey developer, KDSB is required to provide a corporate guarantee to VVB for the performance of the Additional Development Works amounting to 5% of the total contract sum including variation order.
The setting up of an Escrow Account (EA) will further mitigate construction risk, whereby KDSB is required to progressively remit up to RM47.6 million into the EA. The purpose of the EA is to cover for any potential shortfall in the Collection Account in the event of any delays in construction beyond the 18-month timeframe up to 33 months; and to cover for any increase in interest obligations under the CP/MTN. Upon completion of the Additional Development Works, KDSB will ensure that a balance of RM6.5 million remains in the EA to cover for any increase in funding costs.
During the period, ie from the date of issuance of the bonds until July 2007 (initial payment from PKA), interest servicing obligations in respect of the bonds will be covered by funds prefunded out of the bonds equivalent to more than twelve months but less than 18 months, thus, mitigating liquidity risk during the said period. Liquidity risk is also mitigated by the maintenance of a six months coupon/interest for the bonds and CP/MTN in the Debt Service Reserve Account and; a three-month timing buffer between the projected date of receipt of funds from PKA (every July) and the scheduled principal repayments of the bonds (every November) from 2007 to 2011.