RAM Ratings upgrades SEP Resources’ sukuk to AAA, revises outlook to stable

Published on 12 Oct 2022.

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RAM Ratings has upgraded the rating of SEP Resources (M) Sdn Bhd’s (SEP or the Company) RM150 mil Islamic Medium-Term Notes (the Sukuk) to AAA from AA1 and revised the outlook on the Sukuk to stable from positive.   

The rating actions are premised on the transaction’s superior credit profile and outstanding debt coverage indicators, commensurate with an AAA rating. Coupled with the tight cash retention features of the transaction which disallow distributions to shareholders, any cash flow outperformance of the transaction will boost the Company’s financial risk profile, as measured by its finance service coverage ratios (FSCRs), for the remaining tenure of the Sukuk.

As a holding company without an operating business, SEP relies on stable, concession-backed cashflows from its subsidiary, Budaya Positif Sdn Bhd, for the repayment of the Sukuk. The transaction includes a credit linkage to facilitate the flow of monies between the entities via the issuance of Murabahah Stocks. 

Under a 22.5-year concession, Budaya Positif is entitled to monthly payments of Availability Charges, Maintenance Service Charges (MSCs) and Asset Management Programme from Universiti Malaysia Perlis (UniMAP) for the development of student hostels (the Project) in Padang Siding, Perlis. The Project’s maintenance needs are subcontracted to Pesona Asset Management Sdn Bhd, another SEP-related company. Owing to prompt concession payments and healthy profit margins from Budaya Positif’s maintenance services, SEP’s FSCRs in December 2021 and June 2022 surpassed RAM’s projections and the minimum 1.80 times required for an AAA rating.

The risk of non-performance remains low due to the non-complex maintenance of the Project. Budaya Positif’s average performance score (Key Performance Indicators) of 91% for 7M 2022 is a significant step-up from the previous year’s (2021: 84%), while deductions remained negligible (2021: 0.23% of MSCs). The improved scores were attributed to a recently revised and implemented KPI.

Balancing these strengths is SEP’s highly leveraged capital structure and the risk of the concession’s termination. Despite the Company’s heavy debt load, the transaction has proven its strong cash generation and retention ability. Termination of the concession due to non-performance by Budaya Positif and/or UniMAP is highly unlikely, given the straightforward maintenance job and the former’s commendable track record. Should a termination occur, the corporate guarantee extended by Pesona Metro Holdings Berhad – which owns 70% of SEP – may provide financial relief. Pesona Metro Holdings is a mid-sized construction, manufacturing and trading company listed on Bursa Malaysia.


Analytical contacts
Zachary Tan
(603) 3385 2612

Davinder Kaur Gill
(603) 3385 2525


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 2022 by RAM Rating Services Berhad

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