Published on 08 Jun 2022.
RAM Ratings has reaffirmed the AA1/Stable rating of UniTapah Sdn Bhd’s (the Company) Sukuk Murabahah of up to RM600 mil (2014/2035) (the Sukuk) in view of the Company’s steady cashflow and strong debt servicing capacity.
UniTapah was tasked with developing and maintaining Universiti Teknologi MARA’s (UiTM) campus in Tapah, Perak under a 23-year concession. In accordance with the concession agreement (CA), the Company received fixed monthly payments of availability charges (ACs) and maintenance charges in a timely manner throughout 2021. Unitapah’s maintenance track record has been excellent over the last few years and penalties incurred for underperformance of KPIs have been negligible. Maintenance is undertaken externally through Everfine FMS Sdn Bhd, a subsidiary of listed GFM Services Berhad.
The Company’s finance service coverage ratio (FSCR, with cash balances) of 2.07 times in December 2021 exceeded our earlier projection of 1.91 times on account of UiTM’s prompt payments. We expect UniTapah’s repayment capacity to remain healthy, underpinned by recurring ACs and a commendable maintenance track record. Our key stressed assumptions include a three-month delay in the receipt of ACs, zero maintenance margins and lower annual interest income (on cash reserves). These translate into respective minimum and average FSCRs (calculated on a 12-month rolling basis, semi-annually on each payment date, and excludes the final repayment period) of 1.80 times and 1.97 times throughout the Sukuk’s tenure, sufficient levels to comfortably anchor the rating.
The sukukholders’ interests are safeguarded by the transaction’s tight financing structure and restrictive covenants which prohibit distributions to shareholders. The bank account set up to capture ACs is operated by the Security Trustee and its use of funds is well defined to prevent cashflow leakage. Counterparty risk is deemed low as the Government of Malaysia, via UiTM, is the ultimate obligor of concession payments.
For several reasons, however, this transaction is weaker than other RAM-rated transactions backed by private finance initiative/public-private partnership projects. First, the CA will expire ahead of the Sukuk’s maturity date, leaving no room for refinancing. Additionally, concession rights are not directly assigned to sukukholders, the CA allows UiTM to offset amounts due to UniTapah, and if the concession is terminated because Unitapah defaults on its operational obligations, sukukholders will not be fully compensated/covered. That said, the risk of a termination of the concession owing to UniTapah’s non-performance is viewed as remote considering the Company’s good operational history and the non-complex nature of the maintenance work.
Lee Yee Von
(603) 3385 2503
Davinder Kaur Gill
(603) 3385 2525
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Published by RAM Rating Services Berhad
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Ratings on UniTapah Sdn Bhd