RAM Ratings affirms SEP Resources’ sukuk at AAA/Stable

Published on 07 Aug 2023.

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RAM Ratings has affirmed the AAA/Stable rating of SEP Resources (M) Sdn Bhd’s (SEP or the Company) RM150 mil Islamic Medium-Term Notes (the Sukuk).   

The affirmation is premised on the transaction’s superior credit profile and outstanding debt coverage indicators, commensurate with an AAA rating. Coupled with tight cash retention features 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 cash flows 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 two entities via the issuance of Murabahah Stocks. 

Under a 22.5-year concession, Budaya Positif is entitled to monthly payments from Universiti Malaysia Perlis 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 2022 and June 2023 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 registered robust performance scores (key performance indicators) of 93% in 2022 and 92% in 6M 2023. Additionally, deductions for non-performance are still minimal.

Balancing these strengths is SEP’s highly leveraged capital structure and the remote risk of the concession’s termination. Despite the Company’s heavy debt load, the transaction has proven its strong cashflow generation, operating health and cash retention ability. Should 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 2023 by RAM Rating Services Berhad

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Ratings on SEP Resources (M) Sdn Bhd