MARC has affirmed its AAA_IS rating with a stable outlook on Putrajaya Bina Sdn Bhd’s (PBSB) RM1.58 billion Islamic Medium-Term Notes (Sukuk Wakalah) Programme.

Wholly owned by Putrajaya Holdings Sdn Bhd (PJH), PBSB undertook the development of nine blocks of government office buildings and one block of shared facilities in Parcel F, Precinct 1 in Putrajaya under a concession agreement with the Malaysian government. The concession covers a three-and-a-half-year construction period and a 25-year maintenance period. PBSB completed construction in April 2019, five months ahead of schedule; nonetheless, the asset maintenance phase will commence as per schedule in November 2019 when the government occupies the buildings.

The affirmed rating reflects the credit strength of the Malaysian government as the paymaster of availability charges (AC) and maintenance charges (MC) during the 25-year asset maintenance phase. The AC payment of RM215.6 million p.a. is deemed sufficient to meet PBSB’s financial obligations under the rated programme. The MC payment of up to RM69.2 million per annum is subject to meeting specified key performance indicators for maintenance services of the buildings. An irrevocable and unconditional Letter of Support has been provided by its parent PJH (AAA/Stable) to address financial obligations until the first AC and MC payments are received, a month after the receipt of the Certificate of Acceptance. PBSB is expected to receive its first payment in January 2020.

The RM1.9 billion development was largely funded through proceeds from the issuance under the rated programme. The government buildings have a total gross built-up area of about 4.8 million sq ft and will be tenanted by government departments and statutory bodies including Suruhanjaya Perkhidmatan Awam and Jabatan Audit Negara. In respect of building maintenance, PBSB has appointed contractors with established track records in government and office building maintenance and who are capable of managing and operating the facilities in accordance with the concession during the maintenance phase.

PBSB is required to maintain funds equivalent to the finance service amount, one month ahead of its due date at all times. During this review, MARC’s sensitivity analysis on projected cash flows shows that PBSB’s finance service cover ratio (FSCR) will range between 1.19x (2020) and 4.77x (2030) throughout the asset management period (average: 2.29x). Dividend payments or repayment of shareholders’ advances are prohibited if the FSCR is below the minimum required level of 1.50x post-distribution. Concession termination risk is alleviated through the requirement to compensate PBSB with an amount equal to the present value of the future AC payments at the time of termination.

The stable outlook reflects MARC’s expectation of timely and predictable payments from the Malaysian government and that the credit strength of PJH will be maintained at its current rating level during the construction period.

Contacts:
Raj Shankar, +603-2717 2956/ rajshankar@marc.com.my;
Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my