The Sukuk Wakalah was raised to part fund the Kemaman water project for the Terengganu state government. The project was aimed at refurbishing and upgrading water treatment and distribution facilities in Kemaman, Terengganu and was undertaken on a deferred payment basis from the state government.

The project was completed in March 2021 and is pending certification of practical completion (CPC) by the state government. As such, the payment from the state government — scheduled over five years commencing within 45 days from CPC date — has yet to commence. We note that BEWG’s first and second sukuk repayments of RM120.0 million in July 2020 and RM90.0 million in July 2021 had been satisfied by cash received from its parent company, Beijing Enterprises Water Group Limited (BEWGL).

Based in Hong Kong, BEWGL operates a large portfolio of wastewater and water treatment plants in China, mostly for municipal governments in the country under long-term concession arrangements. The rating on BEWG’s Sukuk Wakalah benefits from a one-notch rating uplift on the credit strength of BEWGL which has given its unconditional and irrevocable corporate guarantee (during construction stage) and a letter of undertaking to provide liquidity support to 100%-subsidiary BEWG post-construction completion. We expect financial support from BEWGL to continue to be forthcoming when required, as has been demonstrated in the past. Parent BEWGL has a solid financial profile and a large liquidity buffer (with cash and cash equivalents of HK$15.3 billion or about RM7.9 billion as at end-2020), which should provide it with the financial flexibility to manage challenges and extend financial support to subsidiaries, if required.

Contacts:
Ati Affira Kholid, +603-2717 2941 / affira@marc.com.my;