Published on 22 Apr 2022.
RAM Ratings has reaffirmed the AA1/Stable rating of Sasaran Etika Sdn Bhd’s (the Company) RM220 mil Fixed-Rate Serial Bonds (2012/2027). The Bonds’ debt coverage and credit metrics remain commensurate with its AA1 rating and the minimum debt service coverage ratio (DSCR) covenant under the transaction, sustained by a steady inflow of availability charges (ACs) and the Company’s strong liquidity position and cash reserves.
Sasaran Etika holds a 221/2-year concession for the design, construction, completion and maintenance of residential colleges to accommodate 5,000 students at International Islamic University Malaysia (IIUM) in Kuantan, Pahang. The Company receives monthly ACs for having built the residential colleges, and asset management service charges for the maintenance and upkeep of facilities.
Sasaran Etika’s debt coverage as measured by an annual DSCR1 outperformed our projection of 1.80 times, coming in at 1.96 times in October 2021. We expect Sasaran Etika to register respective minimum and average DSCRs of 1.50 times and 1.65 times throughout the tenure of the Bonds. Our stressed assumptions include a two-month delay in the receipt of ACs and the optimisation of dividend payments throughout the Bonds’ tenure, including a RM3.0 mil distribution in 2022.
Timely receipt of ACs from IIUM remains essential to preserving transaction cashflows as they represent the sole source of repayment of the Bonds. In 2021, ACs were received within an average of 19 days, well within RAM’s stressed analysis of two months. Sasaran Etika faces minimal counterparty risk as the Government of Malaysia (GoM), via the Ministry of Higher Education, is the ultimate obligor of concession payments.
Sasaran Etika’s asset management services for IIUM are deemed non-complex. Maintenance services provided by its sister company, Nadi Cergas Urus Harta Sdn Bhd, have been commendable. A minor deduction incurred (0.60% of monthly maintenance service charges received) resulted from an internal audit conducted by IIUM for prior years, before Nadi Cergas Urus Harta took on the maintenance job.
While termination risk is considered remote, Sasaran Etika is entitled to compensation if the Concession Agreement is terminated by either IIUM or the Company. As with most concession-related companies, Sasaran Etika is exposed to single-project risk, where a force majeure or major operational failure may disrupt its entire operations. We note that AC payments from the GoM and the Company’s maintenance services for IIUM remained uninterrupted amid pandemic-induced movement restrictions.
1 The DSCR is calculated on a 12-month rolling basis, semi-annually on each payment date, and excludes the final repayment period.
(603) 3385 2612
Davinder Kaur Gill
(603) 3385 2525
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Published by RAM Rating Services Berhad
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Ratings on Sasaran Etika Sdn Bhd