RAM Ratings has reaffirmed the rating of Sasaran Etika Sdn Bhd’s (SESB or the Company) RM220 million Fixed Rate Serial Bonds (2012/2027) at AA1/Stable.

Published on 18 Apr 2017.

RAM Ratings has reaffirmed the rating of Sasaran Etika Sdn Bhd’s (SESB or the Company) RM220 million Fixed Rate Serial Bonds (2012/2027) at AA1/Stable.

The rating is supported by SESB’s continued ability to generate healthy cashflows to service its debt obligations. Notwithstanding two hefty dividend distributions in September 2015 and February 2016, the curtailment of dividends since and the stable receipt of Availability Charges from International Islamic University Malaysia (IIUM) had rebuilt the Company’s cash reserves. Under our sensitivity analysis, SESB is expected to register a minimum debt service cover ratio (with cash balances, post-distribution, calculated over a 12-month period on profit/principal repayment months) of 1.50 times for the remaining tenure of the Bonds – a level which is commensurate with the rating. The projection assumes that the Company will exercise financial discipline and avoid excessive dividend distributions.

SESB has been undertaking maintenance services of the residential college since its completion in 2014. The nature of this work is straightforward; the Company continued to perform satisfactorily over the review period despite minor deductions in asset management service charges. Further, SESB faces minimal counterparty risk as the Government of Malaysia (GoM) – via the Ministry of Higher Education – is the ultimate obligor of concession payments to the Company. In addition, the tight structure and restrictive covenants of the transaction limit cashflow leakage. 

That said, we remain cognisant of the risk of delays in concession payments due to administrative hurdles, even though payments have been on schedule since the delivery of IIUM’s colleges. Although viewed as remote, SESB is further exposed to the risk of termination of the concession arising from failure to maintain the residential colleges. 

SESB holds a 221/2-year concession for the design, construction, completion and maintenance of residential colleges to accommodate 5,000 students of IIUM in Pahang. The concession is constituted in a concession agreement between the GoM via the Ministry of Higher Education, IIUM and SESB.

Analytical contact
Wang Wai Wah
(603) 7628 1110
waiwah@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my