Exsim to issue 4.5Y bond at 4.5%-4.7% IPG

- Proceeds from the 7th tranche will fund the acquisition of SPAs for Kingswoodz@Bukit Jalil and Noordinz Suites@George Town, issuance is conditional on 99% take-up rate for both projects.

- An Islamic Commercial Paper (ICP) facility of RM110m is embedded as a credit enhancer to manage temporary shortfalls.

- About 1-year of buffer exists between the projects' legal CCC dates and the tranche's legal maturity date, allowing time to manage delays.

- The two properties are being built by experienced contractors at a fixed lump contract. Contractors were required to provide a performance bond of 5% of contract value, incentivising for timely project completion.

- Any excess funds post-redemption of Tranche 7 will be returned to Exsim Group as an incentive fee, further incentivising project completion and sukuk redemption.

- We recommend EXCAPR Jul2029 Corp (MYR) with IPG of 4.5%-4.7%. The 4.5-year legal maturity also closely aligns with our 2H25 MYR outlook, where we maintain a preference for medium-term bonds.

Company overview and sukuk structure

Exsim Group, a property developer that has gained significant recognition in recent years, plans to issue RM475 million under its 7th tranche.

The proceed from 7^th tranche will be used to acquire beneficial interest of two properties, namely the Kingswoodz@Bukit Jalil and Noordinz Suites@George Town. This involves the present and future SPAs (sales and purchase agreements) of the 2 projects.

The issuance is conditional upon achieving a 99% take-up rate for each of the projects, as one of the conditions precedent for the issuance. As of 30 April 2025, Kingswoodz achieved take up rate of 88% while Noordinz Suites clocked in at 89%.

Based on the RM475 million issuance size, the advance rate (issuance size divided by estimated remaining project net cashflow) is at approximately 76.4%, leaving a 23.6% buffer to cover coupon payments as well as excess funds remaining, providing a comfortable buffer.

ICP facility to address for any temporary shortfall

Notably, there’s an Islamic Commercial Paper (ICP) facility embedded in this tranche, serving as a credit enhancer to address any temporary shortfall. The facility has a credit limit of RM110 million, comprising RM29 million in liquidity ICP and RM81 million in construction reserve + cost overrun ICP. In the event of a cash flow mismatch, the liquidity ICP alone is sufficient to cover one year of coupon payments.

The ICP facility will be drawn as needed and is underwritten by a AAA-rated financial institution. Since the ICP holds a second-ranking charge over SPAs, sukukholders, having a first-ranking charge has a higher priority than ICP holders.

ICP: A short term “bond”/financial instrument that matures within 1 year

Kingswoodz and Noordinz are being built by experienced contractors, at a fixed lump contract

The construction of the 2 properties is actually subcontracted to contractors under fixed lump sum contract. Specifically, Kingswoodz@Bukit Jalil is awarded to Binastra Builders, while Noordinz Suites@George Town is contracted to Taghill Projects. Both are experienced contractors with established track records with Exsim.

For instance, Taghill have Taghill has previously completed projects such as Ceylonz Suites @ Bukit Ceylon and Rosewoodz @ Bukit Jalil for Exsim, while Binastra is engaged with several property developments with Exsim, including Exsim Jalil Data Centre Development and The Vividz@Bukit Jalil. Notably, both Binastra and Taghill were required to provide a performance bond of 5% of contract value, further incentivising for timely project completion.

Adequate time buffer to accommodate potential delays

For tranche 7, it has an expected maturity of 4 years and a legal maturity of 4.5 years. Issuer can redeem the bond commencing from the expected maturity (Jul 2029) up to the legal maturity (Jan 2030).

Suppose that the bond is issued on Jul 2025, there’s about 1 year of buffer between legal CCC date and 7^th tranche legal maturity date. This allows for the contractors and Exsim group to address for any potential delay. We do note that the contractors do have incentive to complete on time due to the 5% performance bond mentioned above.

Incentive mechanism aligning sukukholders and Exsim group’s interests

In the structure of the 7th tranche, there is a built-in monetary incentive for Exsim Group to ensure the timely completion of projects and full bond redemption. This is because any excess funds remaining after the full redemption of Tranche 7 will be returned to Exsim Group as an incentive fee. Based on our calculation, approximately RM69 million in excess funds will be available for collection by Exsim Group upon full redemption.

Additionally, if a buyer defaults on the SPA, the end-financing banks, having previously approved the loan, would have already issued a Letter of Undertaking to the developer, committing to make payments on behalf of the buyer. As a result, payments to Exsim will continue even in the event of a buyer default. The developer, in this case Exsim, also has the right to terminate the SPA and resell the unit to another buyer. This arrangement provides the necessary cash flow and confidence to cover gross development costs and support coupon distribution.

Our view

With various incentives (incentive fee for Exsim Group, performance bond for contractors) and buffers (issuance conditional upon 99% take-up rate, ICPs, 1 year of buffer from legal maturity date, advance rate at 76.4%) in place for this tranche, we view the associated risks to be manageable.

Hence, we recommend EXCAPR Jul2029 Corp (MYR)* sukuk, offering an IPG of 4.5% to 4.7%, for investors seeking a MYR bond with a tenure of approximately 4 to 4.5 years. The 4.5-year legal maturity also closely aligns with our 2H25 MYR outlook, where we maintain a preference for medium-term bonds.

*Interested investors can hover over to the bond IPO page to subscribe.