RAM Ratings has reaffirmed the AAA(s)/stable rating of Aquasar Capital Sdn Bhd’s (Aquasar Capital) RM1,500 million Sukuk Murabahah (2014/2029)

Published on 04 July 2016

RAM Ratings has reaffirmed the AAA(s)/stable rating of Aquasar Capital Sdn Bhd’s (Aquasar Capital) RM1,500 million Sukuk Murabahah (2014/2029). Aquasar Capital is a special-purpose vehicle indirectly held by the Sarawak government via wholly owned Aquasar Holdings Sdn Bhd. Its sole purpose as a funding conduit is to issue the RM1,500 million Sukuk for the development of the Kuching Centralised Sewerage System. The operations and maintenance of sewerage project has no bearing on Aquasar Capital’s repayment of the Sukuk. RAM equates Aquasar Capital’s issue rating with the State’s credit strength as payments of the Sukuk each year are budgeted and borne by the State, although there is no explicit guarantee from the latter in this regard.

The rating is premised on Sarawak’s fiscal strength, abundant natural resources which form the backbone of the economy and the State’s finances, as well as the State’s supportive relationship with the Federal Government. These strengths negate the high total adjusted debt taken on by the State Government and the economic and financial concentration in the resource sector.

The State’s plentiful crude oil and gas, timber and CPO supply underpin its robust financial profile, with more than 50% of revenue derived from oil and gas-related industries. The primary sector is also a major contributor to Sarawak’s economic output. While the economy has benefited greatly from this sector, dependence on resource-related industries exposes the State to economic and financial volatilities. A contraction in government revenue as a result of dampened hydrocarbon prices had substantially narrowed the State’s fiscal surplus to RM1.0 billion in 2015 (2014: RM 3.3 billion). While the Sarawak government has projected a surplus of RM175 million in 2016, frequent supplementary budgets and limited upside potential to government revenue generation may result in the State overshooting its forecast. In any case, ample reserves in excess of RM27 billion help the government withstand external shocks and anchor the stable rating outlook.

Elsewhere, total adjusted debt, which includes commercial debts taken on by state-related entities net of sinking fund and public debt owed to the Federal Government, stood at RM9.0 billion as at end-2015. This is mitigated by the State’s strong liquid asset position which provides a cover of 3 times its total adjusted debt level as at end-2014. The bulk of these debts are long term, which allows the State sufficient time to build up its sinking fund for repayment. Although the debts are largely denominated in USD, conservative exchange rates are used in budgeting yearly amounts to be set aside in the sinking fund, which are held in foreign-currency deposit accounts.

Media contact
Serene Tan
(603) 7628 1088
serene@ram.com.my