RAM Ratings has reaffirmed the AAA/Stable rating of CJ Capital Sdn Bhd’s (CJ Capital) RM114 million Sukuk Murabahah (2010/2020) (Sukuk).

Published on 22 July 2014

RAM Ratings has reaffirmed the AAA/Stable rating of CJ Capital Sdn Bhd’s (CJ Capital) RM114 million Sukuk Murabahah (2010/2020) (Sukuk). CJ Capital, wholly-owned by Cahaya Jauhar Sdn Bhd (CJSB), was set up as a funding vehicle to raise the Sukuk.
CJSB, a 60:40 joint venture between UEM Land Berhad and the Johor State Government (State) via State Secretary Johore (Incorporation) (JSSI), was awarded the turnkey design-and-build contract for the development of Kota Iskandar in Nusajaya, Johor (Project). CJSB is entitled to receive irrevocable and unconditional annuity payments of RM15 million per annum from JSSI for 10 years (Annuity) in return for the completion of Phase 1 and additional works. The Annuity has been given to CJ Capital via the Deed of Hibah.
The AAA rating is supported by the highly predictable annuity payments from a strong counterparty, i.e. the State. The fulfilment of JSSI’s obligations is ensured, based on the strength and enforceability of the key governing documents (principally, the Deed of Annuity and the Deed of Hibah). Notably, the Annuity is payable regardless of the termination or cancellation of agreements relating to the Project, or the variation, delay or cessation of the Project’s other phases. To date, all Annuity payments from JSSI have been prompt.
The structural features of the transaction limit potential cashflow leakage. The funds are to be paid directly into the Annuity Account – a designated account solely managed 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 CJ Capital from paying any dividend or embarking on any other activities until the Sukuk has been fully repaid.
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