Ratings corporation MARC has assigned a preliminary rating of AAAIS with a stable outlook to Putrajaya Bina's (PB's) proposed Islamic medium-term notes (sukuk wakalah) programme of up to RM1.58 billion. An AAA rating from MARC denotes an "extremely strong ability to make payment on the instrument issued under the Islamic asset-based financing contract(s)".
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 PB will undertake under a concession from the Malaysian government.
Based on a private finance initiative, the development entails two phases: three and a half years for construction and 25 years for asset maintenance. Putrajaya Holdings (PJH), as a PB shareholder, 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 Q415 and is expected to be completed by Q418 is being undertaken by 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, PB 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.
Interested?
Find out more about MARC's rating definitions (PDF; from page 53)