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RAM Ratings reaffirms AA1 rating of Widad Concession’s sukuk
Published on 19 Jan 2023.
RAM Ratings has reaffirmed the AA1/Stable rating of Widad Concession Sdn Bhd’s (WCSB) RM310 mil Sukuk Wakalah Facility (2022/2040) (the Sukuk).
The rating is anchored by stable and prompt concession-backed cashflow from WCSB’s sister company, YBK Usahasama Sdn Bhd (YBKU), as well as covenants and restrictions imposed under the Sukuk. WCSB’s consolidated finance service coverage ratio (with cash balances, post-distribution) of at least 1.65 times throughout the Sukuk’s tenure – a measure of its debt coverage – comfortably exceeds the minimum threshold of 1.50 times required to maintain the rating.
WCSB is solely dependent on YBKU’s cashflow to service the Sukuk. Cash transfers from YBKU to WCSB are made via quarterly profit payments and annual principal repayment on murabahah stocks, as well as semi-annual dividend distributions assigned to WCSB by Widad Group Berhad (WGB, the common shareholder of the two entities).
YBKU holds a 23-year concession for the development and maintenance of the Universiti Teknologi MARA (UiTM) campus in Jasin, Melaka (the Project) until 2 February 2034. In return for construction and maintenance works, YBKU receives monthly availability charges and maintenance charges (MCs) from UiTM. In 8M 2022, YBKU maintained a sterling operating performance, with negligible MC deductions (<1% of net MC entitlement).
We observed a few operational and technical covenant breaches during the review period, for which immediate remedial actions are underway. Our assessment indicates that the breaches will have no adverse impact on the Sukuk’s immediate credit quality as a sizeable RM61 mil of sukuk proceeds was retained within the transaction for liquidity purposes (against our estimate of RM47 mil during the initial rating exercise). The higher than anticipated cash reserves helped cushion any near-term liquidity and debt coverage pressure at WCSB as a result of the breaches.
Moderating the rating is the complex transaction structure involving multiple related parties and the short track record of the Project’s relatively new maintenance subcontractor – a WGB subsidiary. Performance risk is mitigated by the straightforward nature of the maintenance job and the contractual arrangement to pass through any performance-linked deductions to the subcontractor.
In the unlikely event that the concession is terminated, the Government of Malaysia has no direct obligation to WCSB’s sukukholders. A corporate guarantee extended by WGB as added transaction security and its undertaking to top up any cash deficiency may afford sukukholders further financial relief in adverse circumstances.
Analytical contacts
Chu Jia Ying
(603) 3385 2519
jiaying@ram.com.my
Davinder Kaur Gill
(603) 3385 2525
davinder@ram.com.my
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 2023 by RAM Rating Services Berhad
