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RAM Ratings affirms Encorp Systembilt
Published on 19 Mar 2024.
RAM Ratings has affirmed the AA1/Stable rating of Encorp Systembilt Sdn Bhd’s (Encorp or the Company) RM1.575 bil Sukuk Murabahah.
Encorp’s debt servicing ability is expected to remain robust, safeguarded by the steady inflow of monthly concession payments and restrictions on the Company’s activities and distributions. The contractual cash inflows Encorp receives from the government, pursuant to its development of 10,000 units of teachers’ quarters throughout Malaysia (completed in 2004), are also free of performance-related deductions.
The Company’s finance service coverage ratio (FSCR, with cash balances, calculated over a 12-month period) is expected to stay above 1.50 times throughout the Sukuk’s tenure, commensurate with an AA1 rating. Despite our assumption of delays, concession payments were timely, coming in within a 27-day average in 2023, while expenses were within the transaction’s permissible limits. Encorp faces minimal counterparty risk as the government is the ultimate paymaster.
As the last tranche of the Sukuk matures three months after the concession expires in February 2028, room for refinancing or restructuring is minimal. Encorp’s projected cash balances after the final principal repayment should provide a buffer of approximately seven months’ contractual payments.
The risk of the concession’s termination is deemed remote. If a default by the Company leads to termination, the sukukholders’ position is protected under the transaction. In the case of a default on the government’s part, the timing and quantum of compensation is uncertain.
Analytical contacts
Julian Chan
(603) 3385 2486
julian@ram.com.my
Davinder Kaur Gill
(603) 3385 2525
davinder@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@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 2024 by RAM Rating Services Berhad
