FW: RAM Ratings reaffirms Widad Capital's AA2/Stable rating

Published on 22 Aug 2017.

RAM Ratings has reaffirmed the rating of Widad Capital Sdn Bhd’s (the Company) Sukuk Murabahah Programme of up to RM110.0 million in Nominal Value at AA2/Stable. This is premised on our expectation that the Company’s strong cashflow generation and robust debt-servicing ability will remain underpinned by the sturdy inflow of contractual payments – pursuant to the facilities maintenance contract entered into with the Public Works Department (PWD) to maintain the National Palace (the Contract).

Widad Capital is entitled to predictable monthly payments in accordance with a schedule in the Contract, although these payments are conditional on performance and consist of provisional maintenance work which is less certain in terms of timing and value. Under our stressed scenario, Widad Capital is projected to register strong minimum and average Finance Service Cover Ratios (with cash balances, calculated over a 12-month period on payment months) of 2.01 times and 3.72 times, respectively, for the remaining tenure of the Sukuk. These are despite our assumption of a hefty 80% reduction on the provisional sum (up to May 2017: 76% cumulatively lower than scheduled).

We note that the subcontractor undertaking the maintenance work – Widad Builders Sdn Bhd – has an established operating track record, and any deductions from monthly payments for failure to meet key performance indicators will be borne by Widad Builders. Additionally, Widad Capital faces a low level of counterparty risk as the Government of Malaysia – via the PWD – is the ultimate obligor of contractual payments to the Company. The sukuk holders are further protected by the tight structure and restrictive covenants of the transaction, notably the prohibition of dividend payments during the Sukuk’s tenure.

Notwithstanding the strengths above, we remain cognisant of the transaction’s moderately aggressive financing structure, particularly the advancement of a substantial 78% of the RM110 million of proceeds from the Sukuk to Widad Capital’s shareholder. Further, the Company is sensitive to delays in the timing of contractual payments, although these have been largely prompt from the commencement of the Contract (i.e., July 2015) up to May 2017. In addition, Widad Capital is exposed to the risk of termination of the Contract owing to its failure to carry out agreed obligations and remedy any breach within a stipulated timeline, although the risk is viewed as low. 

Widad Capital is a wholly owned subsidiary of Widad Builders. The latter was awarded the Contract for the management, operations and maintenance of the National Palace on Jalan Tuanku Abdul Halim, Kuala Lumpur (formerly Jalan Duta) for a period of 7 years commencing July 2015. The Contract was subsequently novated to Widad Capital, effective 25 July 2016, with Widad Builders appointed as the subcontractor to undertake facilities maintenance work.

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

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