Posted Date: September 14, 2020

MARC has affirmed its AAIS rating on BEWG (M) Sdn Bhd's (BEWG) RM400 million Sukuk Wakalah with a stable outlook.

BEWG is a 100%-subsidiary of Hong Kong-based Beijing Enterprises Water Group Limited (BEWGL) and was awarded a design-and-build contract to refurbish and upgrade the Kemaman Water Project by the Terengganu state government. Upon completion of the project, BEWG will be entitled to six payments from the state government totalling RM686.9 million over five years (deferred payment period).

The rating incorporates a rating uplift based on the credit strength of BEWGL which has provided an unconditional and irrevocable corporate guarantee on BEWG's sukuk obligations during the construction stage and a letter of undertaking to provide liquidity support during the deferred payment period. The stable rating outlook incorporates the sufficient protection provided to sukukholders during the construction and post-construction phases. MARC notes that BEWGL provided a sum of €27 million (approximately RM122.5 million) which, combined with RM70.6 million of internal cash, was utilised for the principal repayment and profit payment of RM120 million and RM9.0 million due on July 20, 2020.

Construction remains ongoing as at end-June 2020 with progress standing at 97% and expected handover by end-2020. Slated to complete on December 15, 2019 (Extension of Time No. 1 (EOT1)), it is now expected to be completed by December 2020. In this regard, BEWG has applied for EOT2 to December 15, 2020 which is pending approval. The delay has been attributed to flooding, triggered by monsoon rains at two of its work packages. Additional challenges from the COVID-19 pandemic - including travel restrictions on foreign technical personnel and disruption in the supply chain - have further affected the work progress.

MARC has a sub-sovereign credit rating of AA-/Stable from MARC on Terengganu State Government. Any revision in BEWG's rating and/or outlook will hinge on changes in the credit strength of BEWGL and/or the Terengganu state government.

Ati Affira Kholid, +603-2717 2941 affira@marc.com.my;
Hafiza Abdul Rashid, +603-2717 2955 hafiza@marc.com.my

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