Published on 13 Apr 2021.
RAM Ratings has reaffirmed the AA1/Stable rating of Sasaran Etika Sdn Bhd’s (SESB or the Company) RM220 mil Fixed-Rate Serial Bonds (2012/2027). The Bonds’ sturdy debt coverage and credit metrics will be sustained by a steady inflow of availability charges (ACs). SESB holds a 221/2-year concession for the design, construction, completion and maintenance of residential colleges to accommodate 5,000 students of International Islamic University Malaysia (IIUM) in Kuantan, Pahang. The Company receives monthly ACs for having constructed the residential colleges, and asset management service charges (AMSCs) for the maintenance and upkeep of facilities.
SESB’s debt service cover ratio (DSCR) stood at 1.98 times (with cash balances, post-distribution, calculated over a 12-month period in payment months) in October 2020 – outperforming RAM’s projected 1.83 times. Except for a one-time dip in April 2021, we expect SESB to register respective minimum and average DSCRs of 1.50 and 1.68 times throughout the Bonds’ tenure. This is commensurate with the minimum of 1.50 times required for an AA1 rating. Our stressed assumptions include a two-month delay in the receipt of ACs and optimisation of dividend payments throughout the Bonds’ tenure – including a RM2.5 mil distribution in 2021. The one-off drop in DSCR to 1.46 times in April 2021 is mainly due to irregular timing of tax payments, which will normalise going forward.
Timely receipt of ACs is essential as they represent the sole source of cashflow for repayment of the Bonds. In 2020, ACs were received within an average of 16 days – well within RAM’s stressed analysis. SESB faces minimal counterparty risk as the Government of Malaysia (GoM) – via the Ministry of Higher Education – is the ultimate obligor for concession payments.
SESB’s asset management services for IIUM are deemed non-complex. The maintenance services provided by SESB’s sister company, Nadi Cergas Urus Harta Sdn Bhd, have been commendable, with AMSCs received in full and without any deductions or penalties in 2020.
While termination risk is deemed remote, SESB is entitled to compensation if the CA were to be terminated by either IIUM or SESB. As with most concession-related companies, SESB is exposed to single-project risk; force majeure or a major operational failure may disrupt its entire operations. We note that payments of ACs by the GoM and SESB’s maintenance services for IIUM have remained uninterrupted amid the various stages of pandemic-induced movement restrictions.
Seri Nuralya Munawir
(603) 3385 2484
(603) 3385 2577
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Ratings on Sasaran Etika Sdn Bhd