RAM Ratings reaffirms AAA(s) issue rating of Aquasar Capital, Sarawak government’s funding conduit

Published on 26 Oct 2020.

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RAM Ratings has reaffirmed the AAA(s)/Stable rating of Aquasar Capital Sdn Bhd’s RM1,500 million Sukuk Murabahah Programme (2014/2029). Aquasar Capital acts as the Sarawak government’s funding conduit for the sukuk programme to fund the development of the Kuching Centralised Sewerage System. The operations and maintenance of the project have no bearing on Aquasar Capital’s repayment of the sukuk. 

Although the State government has not extended an explicit guarantee to Aquasar Capital in respect of the sukuk, the issue rating reflects Sarawak’s credit strength, given that periodic principal and profit payments are borne by the State through annual budgetary appropriation. 

The reaffirmation of the rating is based on Sarawak’s strong financial position, underpinned by ample fiscal reserves where its end-2019 position is indicatively 10% less than the RM27 bil as at end-2018. Sarawak’s lofty fiscal reserves remain a sturdy anchor against commodity price volatility, a salient factor in view of the State’s heavy reliance on natural resources for GDP growth and fiscal revenue. These reserves provide a comfortable coverage of 4.3 times the state’s hefty total adjusted debts of RM5.5 bil as at end-2019 (end-2108: 4.0 times; RM6.7 bil). Although the economy is anticipated to further moderate in 2020 amid the COVID-19 pandemic, the weaker growth trend is expected to be only transitory as the rollout of government programmes should drive the recovery momentum next year.

Sarawak’s fiscal revenue is the highest of all Malaysian states, with large receipts from hydrocarbon royalties, dividends from investments in downstream oil and gas companies and additional revenue sources provided for by the Federal Constitution such as duties and sales taxes. The legal tussle between Sarawak and Petronas over the state’s right to impose a 5% state sales tax in 2019 ended in May this year. The full settlement of RM2.96 bil last month is evidence of Petronas’ commitment to achieving an amicable resolution.

The rating will come under pressure in the event of persistently low commodity prices and/or significant spending that materially impact Sarawak’s fiscal position, leading to an erosion of fiscal reserves and a steep escalation of debts. Prolonged weakness in GDP growth and an increase in contingent liabilities beyond levels that the State’s fiscal reserves can support will also weigh on the rating.


Analytical contact
Lynette Lee
(603) 3385 2621

Media contact
Padthma Subbiah
(603) 3385 2577


The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2020 by RAM Rating Services Berhad

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