Published on 11 Apr 2018.
RAM Ratings has reaffirmed the AA1/Stable rating of Sasaran Etika Sdn Bhd’s (SESB or the Company) RM220 million Fixed-Rate Serial Bonds (2012/2027). This reflects our expectation that SESB’s robust cashflow-generating aptitude and debt-servicing ability will be sustained by a steady inflow of Availability Charges.
Following the successful delivery of International Islamic University Malaysia (IIUM) residential colleges (the Project) in October 2014, SESB has been receiving a predictable stream of monthly Availability Charges under its concession agreement (CA) with the Government of Malaysia (GoM) and IIUM. The receipt of Availability Charges from IIUM had remained timely up to December 2017. Under our sensitivity analysis, the Company is expected to register minimum debt service cover ratios (with cash balances, post-distribution, calculated over a 12-month period in payment months) of 1.50 times throughout the remaining tenure of the Bonds – a level which is in line with the rating. The projection assumes that SESB will continue exercising financial discipline and optimise dividend payments throughout the remaining tenure of the Bonds.
The Company has been providing maintenance services for the colleges since their completion in 2014. The nature of this work is straightforward. SESB’s maintenance work stayed commendable in 2017, with only minor deductions in asset-management service charges incurred for not meeting KPIs. Moreover, the Company faces minimal counterparty risk as the GoM – via the Ministry of Higher Education – is the ultimate obligor of concession payments to SESB. The tight structure and restrictive covenants of the transaction also limit cashflow leakage.
That said, we remain cognisant of the risk of delays in concession payments which could possibly arise from administrative hurdles, even though payments have been on schedule since the delivery of the Project. Although remote, SESB is exposed to the risk of the concession being terminated if it fails to maintain the colleges in accordance with the standards set out in the CA.
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.
Wang Wai Wah
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