KUALA LUMPUR (Dec 4): Gamuda Bhd subsidiary Gamuda Water Sdn Bhd's vehicle Glacier Assets Bhd (issuer) has proposed to issue RM630 million worth of senior notes, which will be backed by receivables due from Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (SPLASH), according to RAM Rating Services Bhd (RAM Ratings).

RAM Ratings analysts Lee Siew Xuen and Tan Han Nee wrote in a note yesterday that Glacier was set up by Gamuda Water to monetise the balance of receivables due under the termination and settlement agreement (TSA) between Pengurusan Air Selangor Sdn Bhd (Air Selangor), SPLASH and Gamuda Water.

"Forming a key part of the resolution of long drawn-out negotiations on Selangor's water restructuring exercise, the TSA relates to the settlement of receivables due from SPLASH to Gamuda Water for the supply of treated water and operations and maintenance works performed. Although the primary payment obligation lies with SPLASH, Air Selangor — its parent company — will pay Gamuda Water any missed instalments within a predefined period of the scheduled due dates.

"Under the TSA, the aggregated fees and charges payable are split into two amounts — a settlement sum of RM762.45 million and a cut-over sum of RM7.58 million. The balance of the settlement sum and cut-over sum, excluding the upfront payment of the settlement sum (RM76.24 million) and partial payment of the cut-over sum (RM3.07 million), is payable in nine yearly instalments commencing from Sept 26, 2020, the first of which was paid on the actual date of payment made.

"The unpaid balance of the settlement sum and cut-over sum together with interest charges of 5.25% per annum earned on the unpaid amount, with a combined value of RM759.01 million and payable in eight annual instalments, will be sold to the issuer as a 'true sale' by way of absolute legal assignment," Lee and Tan said.

They said RAM Ratings has assigned a preliminary rating of AAA/Stable to the proposed RM630 million senior notes to be issued under Glacier's RM800 million asset-backed medium-term notes facility.

According to them, the proposed RM630 million senior notes issuance involves eight tranches of senior notes with yearly repayments and rank above an unrated tranche of junior notes.

At the time of writing today, Gamuda Bhd had not made any announcements to Bursa Malaysia on the RM630 million senior notes.

Gamuda Bhd's latest annual report shows that Gamuda Water is an 80%-owned subsidiary of Gamuda Bhd.

RAM Ratings yesterday filed the Glacier RM630 million senior notes rating announcement with Bank Negara Malaysia's website at 6.27pm.

According to the RAM Ratings analysts, the TSA gives SPLASH the option to prepay all or part of the unpaid portion of the settlement sum at any time or prepay the entire unpaid portion of the cut-over sum. 

In this regard, they said RAM Ratings is of the view that liquidity risk is adequately addressed by prepayment terms of the senior notes which mirror that of the TSA. Failure on the part of SPLASH and Air Selangor to meet any annual instalment will constitute an event of default in respect of the facility.

"The declaration of an event of default will allow noteholders to enforce their rights under the transaction documents. That said, all annual instalments not yet due cannot be accelerated, unless Air Selangor is declared insolvent.

"Our stress analysis on reinvestment rates, payment delays and prepayments indicate sufficient liquidity and cash flow to enable full and timely servicing of the senior notes.

"RAM [Ratings] will assign a final rating to the senior notes after a satisfactory review of finalised transaction documents and relevant legal and tax opinions," the analysts said.

On Bursa today, Gamuda Bhd shares were traded unchanged at RM3.72 for a market value of about RM9.35 billion. 

The stock saw 271,300 shares traded.