Press Releases MARC ASSIGNS AAAIS RATING TO PUTRAJAYA BINA SDN BHD’S RM1.58 BILLION ISLAMIC MEDIUM-TERM NOTES (SUKUK WAKALAH) PROGRAMME; OUTLOOK STABLE

Friday, Feb 26, 2016

MARC has assigned a preliminary rating of AAAIS with a stable outlook to Putrajaya Bina Sdn Bhd’s (PBSB) proposed Islamic Medium-Term Notes (Sukuk Wakalah) Programme of up to RM1.58 billion. Proceeds from the issuance will part fund the RM1.9 billion development costs for nine blocks of government office buildings and one block of shared facilities that PBSB will undertake under a concession from the Malaysian government.

Based on a private finance initiative (PFI), the development entails two phases: three and a half years for construction and 25 years for asset maintenance. Putrajaya Holdings Sdn Bhd (PJH), as the shareholder of PBSB, will contribute RM380 million in the form of shareholders’ advances to meet an 80:20 finance-equity ratio requirement. Upon completion of construction and one month after receipt of the Certificate of Acceptance, PBSB will be entitled to receive concession payments in the form of availability charges (AC) of RM215.6 million per annum and asset management service charges (MC) of RM69.2 million per annum for tenancy of the building from various ministries and government agencies.

The assigned rating is driven by the credit strength of the government which provides the AC and MC payments over the tenure of the Sukuk Wakalah Programme. The sufficiency of the quantum of the annual AC payments alone without considering the MC payments to meet the principal and profit payments under the Sukuk Wakalah programme is also a key consideration. The rating also incorporates an irrevocable and unconditional Letter of Support (LoS) from PJH to meet PBSB’s financial obligations, including any cost overruns during the construction period. MARC maintains a long-term rating of AAA/stable on PJH.

The project construction, which commenced in 4Q2015 and is expected to be completed by 4Q2018 is being undertaken by Sunway Construction Sdn Bhd (Sunway Construction) under a fixed-price 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 Sunway Construction and the terms of the fixed-price contract. PJH’s obligations under the LoS which will remain effective until the date of the first AC or MC payment, whichever is later, alleviates the payment risk in the event of delay. Notwithstanding this, should the concession be terminated during the asset management period on default of the government, PBSB will be entitled to a compensation amount of the net present value of foregone future AC payments discounted at the company’s weighted average cost of capital.

The AC payments will be paid monthly at a fixed amount of about RM18.0 million throughout the concession period, whereas the MC payments are contingent upon performance in accordance to prescribed service levels. MARC takes comfort from the facility management capability of PJH to undertake the asset management phase. Liquidity risk arising from any delay in AC payments is mitigated by the requirement for PBSB to maintain a balance in the Finance Service Reserve Account (FSRA), equivalent to the finance service amount falling due within the next one month. In addition, PBSB is only allowed to pay dividends or repay shareholders advances, subject to PBSB receiving the first AC payment as well as satisfying the covenanted Finance Service Cover Ratio (FSCR) of a minimum 1.5 times following such payment. Based on MARC’s sensitivity analysis on PBSB’s cash flow projections, PBSB’s FSCR will range between 2.5 times and 18.0 times throughout the asset management period.

The stable outlook reflects MARC’s expectations on the receipt of timely and predictable cash flows from the government and that the credit strength of PJH will be maintained at its current rating level.


Contacts:
Cheah Wan Kin, +603-2082 2232/ wankin@marc.com.my;
Saifuruddin Othman, +603-2082 2245/ saifuruddin@marc.com.my;
Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my.