Published on 07 Jun 2023.
RAM Ratings has upgraded the rating of UniTapah Sdn Bhd’s (UniTapah or the Company) RM600 mil Sukuk Murabahah (2014/2035) (the Sukuk) to AAA from AA1 in view of its observed strong operating performance, stable credit metrics and steady deleveraging. The long-term rating outlook was maintained at stable.
The upgrade is further anchored on predictable and stable concession payments from the Government of Malaysia – through Universiti Teknologi MARA (UiTM) – of which UniTapah has thus far, received promptly. The Company’s maintenance track record has been commendable over the last few years and penalties incurred for underperformance have been low.
Even under RAM’s sensitised analysis where cash flow receipts are delayed, the Company’s minimum finance service coverage ratios (FSCRs) over the remaining tenure of the Sukuk are projected to outperform the FSCRs required for an AAA-rated low-complexity PFI/PPP transaction, at the transaction’s current rate of cash accumulation and retention. The transaction’s minimum and average FSCRs over the Sukuk’s tenure are projected at a respective 1.86 times and 2.04 times against the management’s respective estimates of 2.14 times and 2.54 times.
The prohibition of distributions to shareholders while the Sukuk remains outstanding, when assessed against ample cash accumulation within the transaction post-sukuk maturity (estimated at RM40 mil to RM58 mil) further provides comfort and gives shareholders a ready incentive to maintain the Company’s resilient operating performance. This will in turn support its robust concession-based cash flows.
These factors, as well as the Company’s near 10-year excellent operating and financial track record, largely moderate the transaction’s structural shortcomings: high leverage at financial close, the presence of an offset clause in the Concession Agreement (CA), the expiry of the concession before the Sukuk’s maturity and the absence of an assignment of rights under the CA. UniTapah was tasked with developing and maintaining the UiTM campus in Tapah, Perak under a 23-year concession.
As with most concession-based transactions, UniTapah is exposed to concession termination risk. If its concession is terminated because UniTapah defaulted on its operational obligations, sukukholders will not be fully compensated. This is viewed as remote, considering the Company’s good operational history and the non-complex nature of the maintenance work.
Hani Hamizah Nor Hashim
(603) 3385 2575
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 2023 by RAM Rating Services Berhad
Ratings on UniTapah Sdn Bhd