RAM Ratings reaffirms AAA rating of SI Capital’s Islamic debt issue

Published on 25 June 2012

RAM Ratings has reaffirmed the AAA rating of SI Capital Sdn Bhd’s (“SI Capital” or “the Company”) RM167 million Bai’ Bithaman Ajil Islamic Debt Securities (2004/2017) (“BaIDS”); the long-term rating has a stable outlook.

SI Capital is indirectly owned by Sarawak Incorporated Sdn Bhd, which is in turn a 100%-held subsidiary of the State Financial Secretary of Sarawak. The redemption of the BaIDS ultimately depends on the stream of payments due from the Sarawak State Government (“the State”), under 3 agreements with SI Capital, i.e. the Concession Agreement, the Lease Agreement and the Redeemable Preference Shares Agreement.

The rating takes into consideration the highly predictable cashflow backed by the said agreements, the credit strength of the Company’s counterparty (the State), and the tight transaction structure as well as restrictive covenants of the financing facility, which minimise cashflow leakage and safeguard SI Capital’s debt-servicing ability. “Given that SI Capital has minimal performance obligations under the various agreements, the rating essentially reflects its counterparty risk, which is deemed low as the State has a strong credit profile. This is underpinned by the Sarawak State Government’s healthy fiscal performance, superior liquidity position and supportive relationship with the Federal Government, although balanced by the concentration of the State’s economy on the resource-based sector and its increasing debt burden,” explains Thong Mun Wai, Head of Real Estate and Construction Ratings.

Notably, payments from the State to SI Capital have been prompt, typically received a few days before the due date; this is envisaged to remain so. Going forward, the Company’s projected debt service coverage ratio is expected to be kept above 1.90 times throughout the tenure of the financing facility, i.e. well above the covenanted 1.25 times.

Media contact
Ben Inn
(603) 7628 1024
ben@ram.com.my