MARC has affirmed its AA-IS rating on Konsortium KAJV Sdn Bhd’s (KAJV) RM1.0 billion Sukuk Wakalah Programme with a stable outlook.
The rating reflects the credit strength of the Terengganu state government to be able to meet the payment obligations due on the Facility Payment Certificates (FPC) the state has issued for the work done as at date by KAJV. MARC maintains a sub-sovereign credit rating of AA-/Stable on Terengganu, premised on the state’s general creditworthiness underpinned by oil royalty payments and the expected continued economic and financial support from the federal government. As at end-July 2021, the state government has approved a sum of RM846.0 million in FPCs while total sukuk issued totalled RM330.0 million.
KAJV is constructing of a 120-million litres per day (MLD) conventional water treatment plant (WTP) and a 28-MLD membrane WTP under the Kuala Terengganu Utara (KTU) water supply project. The KTU project was 79.7% completed as at end-July 2021 and is due for completion by May 14, 2022, from an original schedule date of May 14, 2020. The completion date has been extended by two years by the state government, taking into consideration, inter alia, a previous issue with road access and the delay in the commencement of certain pipeline works as a result.
The extension, however, will have no bearing on the sukuk repayment as sukukholders are insulated from construction delays and termination risks as each issuance of the sukuk is backed by FPCs for works that have been completed. These FPCs are unconditional and irrevocable obligations due from the state government to KAJV, with no right of set-off. To date, payment from the state government has been timely.