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

Published on 03 May 2016

RAM Ratings has reaffirmed the AAA/Stable rating of SI Capital Sdn Bhd’s (SI Capital or the Company) RM167 million Bai’ Bithaman Ajil Islamic Debt Securities (2004/2017) (BaIDS).

The reaffirmation reflects the strength of agreements which govern concession payments from the Sarawak State Government (the State) to SI Capital. The Company is entitled to a stream of predictable cashflows under 3 favourable agreements – the Concession Agreement, Lease Agreements and the Redeemable Preference Shares Subscription Agreement. The tight structural features and restrictive covenants of the financing facility limit potential cashflow leakage.

Payments from the State under the respective agreements have been mostly on schedule and are expected to remain so for the remaining tenure of the BaIDS. These payments are not subject to any dispute or deduction and will be forthcoming even in the event of non-performance by SI Capital. Going forward, the Company’s finance service coverage ratio is anticipated to stay above 2 times – well above the 1.25 times stipulated as a covenant.

Given its minimal performance obligations under the said agreements, SI Capital faces a low level of operational risk. The Company’s exposure to counterparty risk is also minimal as the ultimate obligor of concession payments is the State. Sarawak’s strong fundamentals are underpinned by the State’s strong financial performance, the availability of natural resources and large-scale projects in the pipeline as well as the supportive relationship it shares with the Federal Government. However, these factors are balanced by Sarawak’s sizeable debt burden, its overdependence on commodity-based revenue and the State’s lagging overall development.

A special-purpose funding vehicle, SI Capital is indirectly owned by Sarawak Incorporated Sdn Bhd, a wholly owned subsidiary of the State Financial Secretary of Sarawak. In return for constructing and maintaining government office complexes and residential quarters in Kapit, Mukah and Betong, the Company will receive annuity payments of RM17.02 million over 15 years. Meanwhile, SI Capital had entered into two 15-years Lease Agreements with the State for the rental of Menara Pelita and 46 strata-titled units in Wisma Pelita Tunku.

Media contact

Kathleen Por

(603) 7628 1015

kathleen@ram.com.my