RAM Ratings reaffirms AAA rating of CJ Capital’s sukuk programme

Published on 03 September 2012

RAM Ratings has reaffirmed the AAA long-term rating of CJ Capital Sdn Bhd’s (“CJ Capital” or “the Company”) RM114 million Sukuk Murabahah (2010/2020) with a stable outlook. CJ Capital was set up as a funding vehicle to raise the Sukuk Murabahah; it is wholly-owned by Cahaya Jauhar Sdn Bhd (“CJSB”).

CJSB is a 60:40 joint venture between UEM Land Berhad and the Johor State Government (“State Government”) via State Secretary Johore (Incorporation) (“JSSI”). It had been incorporated to undertake the turnkey design-and-build contract for the development of Kota Iskandar in Nusajaya, Johor (“the Project”). To date, Phase 1 and additional works pertaining to furnishings, landscaping and security have been completed, in return for which CJSB is entitled to receive from JSSI, annuity payments of RM15 million per annum for 10 years (“the Annuity”).

The AAA rating is supported by the stream of highly predictable annuity payments payable by a strong counterparty, i.e. the State Government (via JSSI). The continuance of JSSI’s obligations is ensured, based on the strength and enforceability of key governing documents (principally the Deed of Annuity and the Deed of Hibah). Notably, the annuity payments are payable regardless of the termination or cancellation of agreements relating to the Project, or the variation, delay or cessation of other phases of the Project. To date, all annuity payments from JSSI have been prompt.

Further, the structural features of the transaction minimise potential cashflow leakage. JSSI is required to pay the annuity instalments to CJ Capital without any offset or deduction, even in the event that CJSB is unable to meet its obligations. The funds are to be paid directly into the Annuity Account – a designated account opened and operated solely by the Trustee. The assignment of the Annuity and the charge over the designated accounts, including the Annuity Account, ensure that the Sukuk holders’ legal rights over the funds in these accounts are protected. In addition,  covenants restrict the Company from paying any dividend until the Sukuk Murabahah has been fully repaid or embarking on any other activity (apart from exercising its rights or performing its obligations under the transaction agreements).

On the other hand, timeliness of payment is a key risk factor for this transaction and can be affected by administrative delays. Nevertheless, we derive comfort from the fact that all annuity payments from JSSI have been prompt so far.

Media contact

Anne Yap

(603) 7628 1038

anne@ram.com.my