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 03 May 2016

The rating is supported by the Company’s healthy debt-servicing ability amid the timely receipt of Availability Charges from International Islamic University Malaysia (IIUM). While unexpectedly large dividend payments amounting to RM30.5 million in September 2015 and February 2016 had thinned SESB’s cash buffer, stable concession receipts along with minimal operating expenses will enable the Company to meet a stressed minimum Debt Service Coverage Ratio of 1.48 times in April 2017, provided it observes strict financial discipline in future dividend distributions.

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. Operational risk is also deemed to be low, given the relatively straightforward nature of SESB’s asset management job subsequent to the completion of construction. In addition, the tight structure and restrictive covenants of the transaction limit potential cashflow leakage.

That said, we remain cognisant of the risk of delays in concession payments due to administrative hurdles going forward, notwithstanding that payments from the GoM/IIUM have been on schedule since the delivery of residential colleges for IIUM in October 2014. SESB is further exposed to the risk of termination of the concession – albeit minimally – as the asset maintenance works are not viewed to be complex, thus reducing the likelihood of non-performance on the Company’s part. To this end, Henry Butcher Malaysia Sdn Bhd has served as the maintenance service provider for the Project. Termination of the concession agreement due to non-payment of Availability Charges by IIUM is deemed highly unlikely, given that funds for the concession payments ultimately stem from the GoM.

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.

Media contact
Juliana Koay
(603) 7628 1169
juliana@ram.com.my