Stradcom’s P1.2-B bond float gets good rating

Philippine Rating Services Corp. (PhilRatings), an affiliate of Standard & Poor’s has assigned a PRS ‘Aa’ rating to the planned P1.2-billion bond float by Stradcom Corp., a local company whose shareholders include Philippine Long Distance Co. subsidiary ePLDT and the World Bank investment arm International Finance Corp.

Documents furnished The STAR explained that a PRS ‘Aa’ rating means that Stradcom has a strong capacity to meet its financial commitments on the debt issue. It also means that the issue has a small degree of investment risk, although margins of protection may not be as large as in PRS-Aaa issues.

Stradcom Corp., wholly owned by Stradcom International Holdings Inc. (SIHI), plans to use the proceeds from the issuance of P1.2-billion information technology (IT) bonds partly to pay its loans and to provide financing for components of a P3.4-billion IT infrastructure project for the Land Transportation office (LTO) under a build-own-operate scheme.

SIHI is indirectly owned by principal shareholders Strategic Alliance & Dev’t Corp. (Stradec) and Comfac Corp. through United Information Technologies Inc. to the extent of 37.5 percent and 25 percent, respectively.

ePLDT, a wholly owned subsidiary of PLDT serving as the latter’s primary corporate vehicle for Internet, electronic commerce, and multi-media businesses, owns 22.5 percent of SIHI while IFC has 15 percent.

The IT bonds, due on June 4, 2007, will be offered for sale to the local public, and will have an offer price that is 100 percent of the face value of the bonds. Offer period will start on May 27 and end on May 31, 2002.

Stradcom Corp. is a single purpose entity tasked to develop and operate IT facilities for driver licensing and motor vehicle registration transactions of the LTO.

The LTO-IT project covers the development of a system integrated IT solution infrastructure that will interconnect at least 247 LTO offices nationwide in a wide area network, integrate its critical businesses processes, and enable online transaction processing.

At the core of the project is a data warehouse engine capable of storing information on around 20 million records. At full automation, the project is capable of processing 12 million transactions.

The bonds will be secured via the assignment of Stradcom Corp.’s rights and interests in the concession agreement with LTO until all senior debt is paid, an assignment of existing and future revenues generated from the project, an assignment of performance guarantees of the company’s subcontractors working on the project as well as all insurance claims and proceeds.

According to PhilRatings, the PRS Aa rating reflects Stradcom’s well protected market with stable growth prospects, given that it has a 10-year BOO concession agreement with government. It added that the computerization project is technically feasible given the use of commercially proven technologies and reputable supply and service contractors.

PhilRatings however noted that the rollout will only be finished by mid-2002 and that although the installed system appears to be working well, it said that some time after completion is required to ascertain that the whole project performs as expected.

"The volume of transactions must likewise be observed further, to be able to assess where initial improvements in car sales can be sustained in the light of a slowly improving economy," it pointed out.

The ratings company likewise said that having ePLDT and IFC ( which hold preferred convertible redeemable shares in SIHI) as strategic partners in the enterprise augurs well for Stradcom.

It explained that IFC has commissioned Booz Allen & Hamilton to do a technical review prior to investing in the project as well as extending credit while PLDT is the dominant telecommunications company in the Philippines.