RAM Ratings reaffirms Aquasar Capital's AAA(s) rating, anchored on Sarawak State Government's credit strength

Published on 30 June 2015

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 that is indirectly held by the Sarawak State Financial Secretary via wholly owned Aquasar Holdings Sdn Bhd. Its sole purpose is to issue the Sukuk Murabahah for the development of the Kuching Centralised Sewerage System. The operation and maintenance of the sewerage project has no bearing on Aquasar Capital’s repayment of the Sukuk. RAM equates Aquasar Capital’s issue rating with Sarawak’s credit strength as the payments of the Sukuk each year are borne by the State, although there is no explicit guarantee from the State Government.
The rating is anchored by Sarawak’s fiscal strength, its abundant resources which form the backbone of the economy and the State’s finances, as well as its supportive relationship with the Federal Government. These strengths negate the hefty debt levels assumed by the State Government, economic and financial concentration in the resource sector and the lag in the overall development of the State.
Sarawak’s financials compare favourably to that of other Malaysian states. The State’s cash and investment position stood at over RM23 billion as at end-2013, providing a sufficient buffer against unforeseen deficits and high adjusted-debt levels. Sarawak has ample fiscal reserves from the accumulation of past budget surpluses, attributable to the State’s solid revenue-generating ability. The State is rich in resources – crude oil and gas, timber and crude palm oil – which underpin its robust financial profile, with more than 50% of its revenue derived from oil and gas-related industries. The primary sector is also a major contributor to the State’s economic output. While Sarawak’s economy has benefited greatly from this sector, its significant dependence on resource-related industries exposes it to economic and financial volatility. The State projects its fiscal surplus to narrow this year (expected 2015: RM366 million; unaudited 2014: RM3,050 million) owing to lower oil prices (RAM’s average 2015 oil price forecast: USD60 per barrel). In any case, Sarawak’s ample liquid assets, which stood at over 4.5 times its annual expenditure and 2.5 times its total adjusted debt, sufficiently cushion the State against any unexpected deficit.

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Serene Tan
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serene@ram.com.my