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08 Dec | Monday
RAM Ratings assigns final AA2 rating to UniTapah’s proposed sukuk

RAM Ratings has assigned a final AA2/stable rating to UniTapah Sdn Bhd’s (UniTapah) proposed Sukuk Murabahah of up to RM600 million (2014/2034) (proposed Sukuk). UniTapah is the concessionaire for the design, construction and maintenance of the new campus for Universiti Teknologi MARA (UiTM) in Perak under a 23-year Concession Agreement (CA) between the Government of Malaysia (GoM), UiTM and UniTapah. Issuance proceeds will be largely used to refinance an existing term loan taken to fund construction.

UniTapah is no longer exposed to construction risk following the successful completion of the campus on 9 January 2014, within the 3-year timeframe stipulated in the CA. More importantly, UiTM had accepted the campus, via the issuance of a Certificate of Acceptance dated 18 January 2014. In return for constructing and maintaining the campus, UniTapah is entitled to receive payments in the form of Availability Charges and Maintenance Charges, respectively.
 
The rating is further supported by a predictable stream of monthly concession payments from a strong counterparty, given that the ultimate obligor is the GoM through the Ministry of Education, although the sole paymaster is UiTM. Our cashflow analysis shows that UniTapah has a strong debt-servicing ability; its respective “stressed” minimum and average finance service cover ratios stand at 1.71 times and 1.93 times (with cash, calculated over a 12-month period on profit/principal-payment months). The tight financing structure and restrictive covenants of the transaction further minimise potential cashflow leakage. 

The rating is moderated by UniTapah’s susceptibility to delays in concession payments as well as the short track record of payment from the Government/UiTM and maintenance. Nevertheless, we derive some comfort from the fact that most of the first 8 Availability Charge payments were made within 30 days of the invoice dates. The proposed Sukuk Murabahah is also expected to mature in June 2034, i.e. after the concession expires on 18 January 2034. This sets this transaction apart from some of the other rated transactions, where bond tenures fall well within the concession period, leaving room for potential refinancing should the need arise. However, the repayment of the proposed Sukuk is well supported by the accumulated funds in the designated accounts for the transaction.

Elsewhere, the transaction is exposed to the risk of termination of the CA, which will disrupt concession payments. In the event of termination due to non-performance by UniTapah during the maintenance period, we highlight that compensation from the GoM will only cover the amount taken to fund construction cost, and hence will not cover the full sum of the proposed Sukuk. Unlike similar transactions within our portfolio, Sukuk holders under this transaction do not have direct recourse against the Government and UiTM, given the absence of the assignment of certain rights, interests, titles and benefits under the CA to the Sukuk holders. Nevertheless, under the negative covenants of the transaction, UniTapah is not allowed to amend the CA without the prior written consent of the Trustee, save for any amendments required by the GoM or due to any legal requirements. Some comfort can also be derived from the opinion of the legal counsel for the transaction that the Sukuk holders can exercise their charges and rights through the debenture.


Media contact
Karin Koh
(603) 7628 1174
karin@ram.com.my

Date of release: 8 December 2014

 

 


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