Published on 24 Oct 2019.
RAM Ratings has reaffirmed the AA2 rating of Widad Capital Sdn Bhd’s (the Company or Widad Capital) Sukuk Murabahah Programme of up to RM110.0 mil in Nominal Value (the Sukuk). Concurrently, the rating outlook has been revised from stable to positive, premised on the Company exceeding our expectations by recording better-than-expected finance service coverage ratio (FSCR, with cash balances, calculated over a 12-month period in payment months) of above 1.90 times in the last two years and this trend is anticipated to continue – on a projected basis. The Company’s sustained outperformance may warrant an upward reassessment of the rating in the next 12 to 18 months.
Widad Capital is a wholly owned subsidiary of Widad Builders Sdn Bhd (Widad Builders), which is in turn fully held by Bursa Malaysia-listed Widad Group Berhad (formerly known as Ideal Jacobs (Malaysia) Corporation Bhd). Widad Group Bhd is controlled by Tan Sri Muhammad Ikmal via his stakes in Widad Business Group Sdn Bhd. Widad Builders was awarded the contract (the Contract) for the management, operation and maintenance of the National Palace on Jalan Tuanku Abdul Halim, Kuala Lumpur (formerly Jalan Duta), for seven years effective July 2015. The Contract was novated to Widad Capital on 25 July 2016, with Widad Builders appointed as the sub-contractor to undertake facilities maintenance work.
Widad Capital is entitled to monthly payments from the Public Works Department (PWD) pursuant to a schedule under the Contract. However, these monthly receipts are conditional on the Company’s performance of maintenance work for the National Palace, with a portion comprising provisional maintenance work. Including 20% of the remaining provisional sum, Widad Capital is projected to register respective minimum and average FSCRs of 1.95 and 2.37 times throughout the remaining tenure of the Sukuk (base case: 2.50 and 2.85 times). Even without the remaining value of the provisional sum, the ratios would still come up to a respective 1.90 and 2.34 times (base case: 2.23 times, 2.66 times).
Widad Builders, the sub-contractor, has a reputable operating track record, underpinned by three years’ experience in having maintained the National Palace before its current contract. Its performance was satisfactory during the period under review. Deductions had been minimal, at an average of 1.8% of monthly work done - borne and will continue to be borne by Widad Builders as required under the sub-contract. Having the Government of Malaysia – via the PWD – as the ultimate obligor of contractual payments minimises the Company’s counterparty risk. The Sukuk holders are further protected by the tight structure and restrictive covenants of the transaction, particularly the prohibition of dividend payments throughout the Sukuk’s tenure.
Despite these strengths, we note the transaction’s moderately aggressive financing structure, especially the advancement of a substantial 78% of the RM110 mil of proceeds from the Sukuk to Widad Builders, mainly for working-capital purposes. Moreover, the Company is sensitive to delays in the timing of contractual payments. On this front, payments have been prompt since the commencement of the Contract (i.e. July 2015). Although the likelihood is low, the Company is still exposed to the risk of termination of the Contract if it fails to fulfil its obligations and/or remedy any breach within the stipulated time frame.
Davinder Kaur Gill
(603) 3385 2525
(603) 3385 2577
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Ratings on Widad Capital Sdn Bhd