RAM Ratings reaffirms AA1 rating of Indera Persada’s bonds

KUALA LUMPUR: RAM Rating Services has reaffirmed the AA1/Stable rating of Indera Persada Sdn Bhd’s RM280mil fixed rate serial bonds (2013/2028).

The ratings agency said on Thursday Indera Persada’s exposure to construction risk is alleviated by an unconditional and irrevocable performance guarantee (PG) of RM280mil, extended to bondholders by United Overseas Bank (Malaysia) Bhd. The PG is for the duration of the construction period.

Under the PG, UOBM will pay the guaranteed amount if there is  a default, including the company’s failure to complete the construction of the Malaysian National Technology Advancement Centre (MTAC) within the 36 months period.

“As the design and build contract for MTAC is a fixed-price, lump-sum contract, any additional costs will be borne by the contractor. We note that actual construction progress stood at 50.0% as at Aug 15, 2015, ahead of the scheduled 42.4%,” it said.

Upon the issuance of a certificate of acceptance, Indera Persada will receive a lump sum payment of RM66mil for the supply and commissioning of ICT and training equipment.

The company will also be entitled to the concession payments over 15 years for the construction and maintenance of the facilities and infrastructure.

“RAM views Indera Persada’s debt-servicing ability as strong, given its projected stressed minimum debt service cover ratio (DSCR) (with cash balances, post-distribution on payment months) of 1.70 times.

“Our analysis includes optimising dividends to shareholders to the extent allowed by covenants under the transaction and conservatively excluding profits from maintenance services charges.

“As the government of Malaysia is the ultimate obligor for the concession payments, the company faces a low degree of counterparty risk. Further, cashflow leakage is limited by the tight structure and restrictive covenants of the transaction,” it said.

Indera Persada is a single-purpose company set up to build the MTA, which is the PWD’s training centre, in Malacca, under an 18-year concession agreement with the government, dated March 18, 2013. The agreement includes the asset management services.