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MARC Affirms AAIS Rating on BEWG’s RM400.0 Million Sukuk Wakalah

IM Press Release
By IM Press Release
5 years ago
MARC Affirms AAIS Rating on BEWG’s RM400.0 Million Sukuk Wakalah

Sukuk, Wakalah


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  1. IM Press Release Service Published on :​ ​IslamicMarkets.com Publications: ​https://islamicmarkets.com/publications MARC Affirms AAIS Rating on BEWG’s RM400.0 Million Sukuk Wakalah 17 December 2018 MARC has affirmed its rating of AAIS on BEWG (M) Sdn Bhd’s (BEWG) RM400.0 million Sukuk Wakalah with a stable outlook. The affirmed rating incorporates a one-notch rating uplift based on the credit strength of BEWG’s parent Beijing Enterprises Water Group Limited (BEWGL), which has provided an unconditional and irrevocable corporate guarantee during the construction phase of the water treatment project in Kemaman, Terengganu and a letter of undertaking to provide liquidity support to meet financial obligations on the sukuk during the deferred payment period of the project. On a standalone basis, the rating reflects the credit strength of the Terengganu state government which will make periodic payments upon completion of the project. The construction of the RM499 million water treatment project has faced delays largely due to land acquisition issues during the early stages and subsequent unfavourable weather conditions susbequently. Construction completion was registered at 62.2% against a planned 91.0% as at end-July 2018. MARC notes that BEWG has received an extension of time (EOT) of up to 13 months ending December 15, 2019 from the Terengganu state government. However, the company expects to complete outstanding works by September 2019 from the initial expected completion date of end-November 2018. Given that the scheduled sukuk redemption only begins in July 2020, the new construction completion date provides a nine-month time buffer. Upon receipt of the certificate of practical completion, the state government will make six payments to BEWG amounting to RM686.9 million over a five-year period. Based on the new expected construction completion date, the first payment of RM129.6 million is expected to be received by November 2019. During the EOT period, BEWG will meet its profit payment obligations under the rated sukuk through internal cash balance. BEWG’s cash balance as at end-March 2018, net of cash required to complete the project stood at about RM66.6 million while combined profit obligations until construction completion amounted to about RM42.0 million. MARC draws comfort from the requirement to maintain a minimum balance equivalent to the next six months’ profit and principal payments in the finance service reserve account. The company’s cash flow projections with expected completion date extended for 10 months to September 2019 indicates that BEWG would achieve minimum and average financial service cover ratios (FSCR) of 2.21x and 3.33x during the tenure of the sukuk against the covenanted
  2. IM Press Release Service Published on :​ ​IslamicMarkets.com Publications: ​https://islamicmarkets.com/publications FSCR of 1.75x. Based on MARC’s sensitivity analysis, the company’s cash flow can withstand an increase of 15% in construction costs before breaching its covenanted FSCR. While the strength of the payment stream reflects the state government’s ability to meet the scheduled payments, any potential payment delays and cost overruns are expected to be addressed by BEWGL’s liquidity support. Incorporating the delays in construction completion from the initial completion date, the sukuk structure remains supportive of a build-up of cash reserves. Any dividends and reimbursement to its shareholder BEWGL can only be made if the project FSCR exceeds 2.00x after such payments are made. The stable rating outlook incorporates the sufficient protection provided to sukukholders during the construction and post-construction phases. Any revision in the rating and/or outlook will also hinge on changes in the credit strength of BEWGL and/or the Terengganu state government. Organisation Name: Malaysian Rating Corporation Berhad (MARC) News Type: RATING ANNOUNCEMENT Source: https://www.marc.com.my/index.php/marc-rating-announcements/990 -marc-affirms-aais-rating-on-bewg-s-rm400-0-million-sukuk-wakalah-2 0181217 Contacts Joey Lim Jia Yan, +603-2717 2962/ ​joey@marc.com.my​; Taufiq Kamal, +603-2717 2951/ ​taufiq@marc.com.my Disclaimer: This communication is provided by Malaysian Rating Corporation Berhad (MARC) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of its opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.