MARC has assigned a preliminary rating of AAA(IS) with a stable outlook to Putrajaya Management Sdn Bhd’s (PMSB) proposed Islamic Medium Term Notes (Sukuk Wakalah) programme of up to RM370.0 million.

The proceeds from the issuance will be mainly utilised to finance the construction of the 31-storey Ministry of International Trade and Industry (MITI) office tower, which is being undertaken by PMSB under a 28-and-half-year concession awarded by the Government of Malaysia (GoM) represented through MITI on February 3, 2012. The private finance initiative (PFI) project, which is located on Jalan Duta in Kuala Lumpur, is divided into a three-and-half-year construction phase followed by a 25-year asset maintenance phase under which PMSB will receive concession payments from MITI in the form of availability charges (AC) and asset management service charges (MC).

The rating reflects the credit strength of the GoM represented through MITI which will provide periodic AC payments for the sublease of MITI office tower during the asset maintenance phase, the quantum of which is deemed to be sufficient to meet the principal and profit payments under the Sukuk Wakalah programme. The rating also incorporates the undertaking from PMSB’s parent company, Putrajaya Holdings Sdn Bhd (PJH), through an irrevocable and unconditional Letter of Support (LOS) to meet all principal and profit payment obligations as well as cover any cost overruns in relation to the construction of the MITI office tower during the construction phase of the project. MARC views PJH as a strong credit to be able to extend financial support to PMSB during the construction phase. PJH, which is an indirect subsidiary of Petroliam Nasional Berhad (PETRONAS), has an extensive development track record as the master developer of Putrajaya.      

Construction on the MITI office tower commenced in February 2012 and has achieved construction progress of 19.26% as at August 30, 2013, which is slightly ahead of progress schedule. The construction is undertaken by WCT Berhad (WCT) under a fixed-priced contract. MARC considers the completion and cost overrun risks to be mitigated by the moderate complexity of the project, the established track record of the principal contractor, WCT, and the terms of the fixed-priced contract. MARC also notes that the initial construction work has been funded by a shareholders’ advance of RM50.2 million from PJH; part of the proceeds from the drawdown under the Sukuk Wakalah programme will be utilised to repay shareholders’ advances and fund profit payments during the construction phase.

The project is expected to be completed by end-March 2015. The AC and MC payments will begin one month after the receipt of Certificate of Acceptance and upon submission of respective invoices to the GoM. In addition, the company is also entitled to a one-off seismic payment of not more than RM15.5 million within 12 months of receipt of Certificate of Acceptance. Nonetheless, any delay in the commencement of the payments is mitigated by PJH’s obligations under the LOS which will remain effective until the receipt of the first AC payment and the acknowledgement of the notice of the assignment of sublease agreement from the GoM whichever is later.

MARC notes that only the AC payments will be captured in the Financial Service Reserve Account (FSRA) to meet the financial obligations under the programme while the MC payments will be routed to an asset management account to meet the operational and maintenance requirements of the MITI office tower. The MC payments, however, are contingent upon PMSB meeting specified key performance indicators (KPI), failing which penalty charges will be deducted from current and/or future MC payments, if deemed insufficient. MARC draws comfort from the fact that the fixed AC payments will not be affected in the event of any failure to meet KPIs.

Based on MARC’s sensitivity analysis of PMSB’s cash flows, the AC payments are sufficient to meet the profit and principal payments over the Sukuk Wakalah programme. Liquidity risk is mitigated by the progressive build-up of funds in the FSRA consisting of principal and profits due under the Sukuk Wakalah programme to be built up in six equal monthly instalments beginning six months prior to the due date.

The stable outlook reflects MARC’s expectations of the receipt of timely and predictable cash flows from the GoM and that the credit strength of PJH is maintained.

Contacts:
Jasmine Kua, +603-2082 2280/ jasmine@marc.com.my;
Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my; 
Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my