MARC has assigned the ratings of MARC-1ID/AAID and A+ID to Serrisa Sinar Berhad’s (SSB) RM200 million ICP/IMTN notes (Senior Notes) and RM20 million Junior IMTN (Junior Notes) (collectively, ICP/IMTN Facility). The ratings of the Senior Notes reflect the credit quality of the rental payment stream from creditworthy telecommunication companies (telcos) that is assessed to be MARC-1ID/AAID. The payment stream is backed by a licence agreement that obligates the telcos to make monthly payments of agreed rent over a period of 10 years. Other positive factors include structural protections which ring-fence the rental payments from the telcos for the benefit of noteholders, the elimination of the noteholders’ exposure to construction risk, and Weida Works Sdn Bhd’s (WWSB) exclusivity, pursuant to a joint venture agreement, in the construction of telecommunication towers in the state of Sabah, under the aforementioned license agreement. The rating of the Junior Notes reflects its subordination to the Senior Notes in respect of profit payment and principal repayment. 

SSB is a stand-alone single purpose company established for the purpose of issuing the Senior and Junior Notes and collecting monthly lease payments from the telcos.  

WWSB entered into a joint-venture agreement (JV Agreement) with Common Tower Technologies Sdn. Bhd. (CTT), the only state-backed company that has been licensed to build, manage, lease and maintain telecommunication towers in the state of Sabah. Pursuant to the JV Agreement, WWSB has the exclusive rights to design, finance and construct telecommunication towers in the state. CTT entered into a 10-year License Agreement with Celcom (Malaysia) Bhd, Maxis Broadband Sdn Bhd and DiGi Telecommunications Sdn Bhd in August 2005 (with an option to renew for a further five years), under which CTT’s responsibilities and obligations include acquiring appropriate sites, commissioning the construction of towers and granting telcos the right to use the towers on a sharing basis.

Under the transaction, the drawdown of the Senior Notes is only upon completion of construction of towers by WWSB, evidenced by the issuance of amongst others, Certificate of Acceptance (COA) or Site Acceptance Checklist (SAC) with evidence of commencement of rental payment from the telcos, thus eliminating construction risk.  The lease rental payments from the telcos, which form the source of principal repayment and profit payment for the ICP/IMTN will be paid directly into a trustee-operated collection account, hence mitigating the risk of payments from telcos commingling with other funds of WWSB. Under the terms of the ICP/IMTN Facility, 60% of the lease rental payments received will be paid into the sinking fund account that is created to capture funds for the payment of profit and principal repayment of the Senior and Junior Notes. The remaining 40% will be channelled to WWSB in accordance with the sale and purchase agreement between WWSB and SSB.

CTT is responsible for the maintenance of the towers while the maintenance of equipment is the responsibility of the telcos. Maintenance risk is assessed as low due to the minimal amount of maintenance work involved and given that the costs should be more than sufficiently covered by the 40% of rental payments from the telcos. Under base case projections, average and minimum finance service cover ratio (FSCR) for the Senior Notes are 2.6X and 1.9X respectively, and 2.5X and 1.9X for the Junior Notes respectively. The forecasted cashflow exhibits moderate resilience to delays in rental receipts and potentially lower rental income caused by changes in the zoning of sites, with minimum FSCR expected to be at least 1.0X under the various stress scenarios.