FW: RAM Ratings upgrades UniTapah's rating to AA1/Stable

Published on 25 Sep 2017.

 

RAM Ratings has upgraded the rating of UniTapah Sdn Bhd’s (the Company) Sukuk Murabahah of up to RM600 million (2014/2035) to AA1 from AA2. Concurrently, the outlook on the rating has been revised to stable from positive. The upgrade is premised on the Company’s minimum finance service coverage ratio exceeding 1.80 times projected under our stressed scenario – commensurate with an AA1 rating – on the back of cash accumulation and retention in the transaction. The upgrade is also supported by the satisfactory track record of the Company’s operating performance as well as payment history from the Government of Malaysia (GoM). Going forward, UniTapah’s robust debt-servicing ability is expected to be sustained by steady payments from the GoM and the commendable performance of maintenance work for Universiti Teknologi MARA’s (UiTM) campus.

Subsequent to the successful delivery of the campus in January 2014, UniTapah enjoys predictable stream of concession payments, in the form of monthly Availability Charges fixed at RM3.6 million throughout its Concession Agreement (CA) with the GoM and UiTM. The Company also earns Maintenance Charges for campus maintenance. In this respect, UniTapah has established a commendable performance track record thus far, with minimal performance deductions of less than 1% of cumulative Maintenance Charges since the commencement of operations. 
    
The tight financing structure and restrictive covenants of the transaction further safeguard the Company’s debt-servicing ability. These include limits on UniTapah’s business activities, the incurrence of additional debt and dividend payments. Additionally, given that the ultimate obligor of concession payments is the GoM, the level of counterparty risk is low. 

Notwithstanding the strong counterparty and largely prompt payments from the GoM to date, UniTapah remains susceptible to delays in the timing of contractual payments. UniTapah is also exposed to the risk of termination of the CA, which may result from the Company’s failure to conduct maintenance services. In the unlikely event of a default by the Company, compensation from the GoM may not be sufficient to cover the entire sukuk amount and will only make up the construction cost. Meanwhile, some structural features of this transaction render it riskier than other private finance initiative/public private partnership projects. These include the expiry of the CA before the Sukuk’s maturity, UiTM’s right to offset any amount owed by UniTapah from any sum payable to the Company, and the absence of an assignment of certain rights under the CA to sukuk holders.

UniTapah is the concession company for the design, construction and maintenance of UiTM’s campus in Perak, under a 23-year CA between the GoM, UiTM and the Company. Proceeds from the issuance of the Sukuk had largely been used to refinance a term loan previously taken to fund construction.

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

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