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 mirrors Terengganu’s sub-sovereign AA-/Stable rating and reflects the capacity 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 water supply project. The project involves the construction of a 120-million litres per day (MLD) conventional water treatment plant (WTP) and a 28-MLD membrane WTP as well as retrofitting works of existing WTPs, among other related works.

On April 28, 2024, the state government had agreed to an eighth extension of the project completion deadline to December 31, 2024 (EOT No. 8), from the previous deadline of April 28, 2024. MARC Ratings understands that the project delay stems primarily from delays in retrofitting works. As of March 25, 2024, the project was 97.0% completed.

Sukukholders are, nevertheless, insulated from construction and termination risks, as each sukuk issuance is backed by approved FPCs for works that have been completed. The FPCs represent unconditional and irrevocable payment obligations — with no set-off — of the Terengganu state government, notwithstanding any delay in the full completion or termination of the project.

The rating is underpinned by these strong transaction features. As to date, KAJV has received four deferred payments of RM108.8 million each from the Terengganu state government, all of which were received on time.