MARC Ratings has affirmed BEWG (M) Sdn Bhd’s (BEWG) RM400 million Sukuk Wakalah rating of AAIS with a stable outlook.
BEWG is a 100%-subsidiary of Hong Kong–based Beijing Enterprises Water Group Limited (BEWGL), principally involved in the water treatment and distribution facilities project in Kemaman for the Terengganu state government.
The rating incorporates the credit strength of the Terengganu state government (AA-/Stable) which will make periodic payments under a scheduled payment structure to meet sukuk obligations upon certified completion of the project. The rating also factors in a one-notch uplift based on the credit strength of BEWGL, which has provided an unconditional and irrevocable corporate guarantee (during construction stage) and a letter of undertaking to provide liquidity support to BEWG post- completion if needed. MARC Ratings notes that BEWGL has provided the liquidity to meet the first and second sukuk repayments of RM120.0 million in July 2020 and RM90.0 million in July 2021, due to delays in the completion of the project largely caused by route realignment and weather conditions.
The project was completed in March 2021 under approved Extension of Time (EOT) No. 4 within budget (RM499.0 million) and received the Certificate of Practical Completion from the Terengganu state government on November 24, 2021. Following the certification, BEWG received RM129.63 million from the state government on December 14, 2021, the first of the six payments it is entitled to under the contract.
As at end-January 2022, the outstanding sukuk stood at RM190 million, with the next financial commitment of RM85.15 million due on July 19, 2022, for which the received payment from the state government has been set aside in the Finance Service Reserve Account. Notwithstanding the scheduled payments from the Terengganu state government to repay the remaining sukuk obligations, we opine that the demonstrated financial support from BEWGL will be forthcoming if required.