MARC Ratings 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 meet its payment obligations due on the Facility Payment Certificates (FPC) it issued for work completed by KAJV for the Kuala Terengganu Utara (KTU) water supply project. The state of Terengganu carries a sub-sovereign credit rating of AA-/Stable from MARC Ratings. Payment from the state government has been timely, with RM217.6 million received to date, on schedule.
The KTU project involves the construction of a 120-million litres per day (MLD) conventional water treatment plant (WTP) and a 28-MLD membrane WTP. The project was 86.2% completed as of end-January 2022 and is scheduled for completion by September 5, 2022. This new end date for construction work completion from an earlier May 14, 2022, was approved by the state government after taking into consideration COVID-19 disruptions.
Nonetheless, the Sukuk Wakalah’s strong structural features protect sukukholders from construction delay and termination risks. Each sukuk issuance is backed by FPCs for works that have been completed. These FPCs represent unconditional and irrevocable payment obligations on the state government notwithstanding any delay in the full completion or termination of the project, and with no right of set-off.
As of end-February 2022, KAJV’s liquidity stood at RM186.2 million of cash and cash equivalents, providing sufficient cover on the upcoming sukuk maturity of RM70 million on May 13, 2022.