Published on 09 Oct 2019.
RAM Ratings has reaffirmed the AA1/Stable rating of UniTapah Sdn Bhd’s (the Company) Sukuk Murabahah of up to RM600 mil (2014/2035). UniTapah is the concessionaire for the design, construction and maintenance of UiTM’s campus in Perak, under a 23-year Concession Agreement (CA) between the Government of Malaysia (GoM), University Teknologi MARA (UiTM) and the Company. Proceeds from the issuance of the Sukuk had largely been used to refinance an earlier term loan to fund the project’s construction.
The reaffirmation of the rating is premised on the timely receipt of Availability Charges from the GoM through UiTM, and the Company’s commendable track record on maintenance work at the UiTM campus. The reaffirmation is also supported by UniTapah’s minimum finance service coverage ratio that exceeds 1.80 times under our stressed scenario, backed by cash accumulation and retention under the transaction.
Following the delivery of the campus in January 2014, UniTapah has been receiving a predictable stream of concession payments in the form of monthly Availability Charges, amounting to RM3.6 mil throughout its CA with the GoM and UiTM. The Company also earns Maintenance Charges for campus maintenance work. In this respect, UniTapah has upheld its commendable track record on maintenance work, with performance deductions of less than 1% of the cumulative Maintenance Charges in FY Dec 2018.
The transaction’s tight financing structure and restrictive covenants further safeguard the Company’s debt-servicing ability. These include limits on UniTapah’s activities, the incurrence of additional debt and dividend payments. Additionally, concession payments from the GoM are captured in designated accounts, most of which are solely operated by the Security Trustee. The transaction’s counterparty risk is also deemed low, as the ultimate obligor of the concession payments is the GoM. Despite its sturdy counterparty and largely prompt payments from the GoM to date, UniTapah remains susceptible to delays in the receipt of contractual payments.
In the unlikely event of a default by the Company under the CA, compensation from the GoM may not be sufficient to cover the Sukuk’s entire outstanding amount and will only address the construction cost. Meanwhile, some structural features of this transaction render it more risky than other private finance initiative/public-private partnership projects. These include the expiry of the CA before the Sukuk’s maturity, UiTM’s right to offset any amount owed by UniTapah from any sum payable to the Company, and the absence of any assignment of certain rights under the CA to the Sukuk holders.
Hafiz Abdul Aziz
(603) 3385 2534
(603) 3385 2577
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Ratings on UniTapah Sdn Bhd