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 Terengganu’s sub-sovereign AA-/Stable rating and the state government’s creditworthiness in meeting its payment obligations on the Facility Payment Certificates (FPC) issued for work completed by KAJV on 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), a 28-MLD membrane WTP, and retrofitting works at existing WTPs, among other related works.

The project completion date has been extended multiple times. On 31 December 2024, the state government approved an additional extension of time (EOT) under the same EOT No. 8, moving the completion deadline from 31 December 2024 to 31 May 2025. As at 25 May 2025, the project was 99.7% complete. KAJV now anticipates completing it by end-June 2025 and expects to receive an additional extension by the state government.

Despite delays, sukukholders are protected from construction and termination risks, as each sukuk issuance is backed by approved FPCs for completed works. The FPCs constitute unconditional and irrevocable payment obligations — with no set-off — of the Terengganu state government, regardless of project delays or termination.

The strong features of the transaction support the rating. To date, KAJV has received six payments totalling RM652.8 million from the state government. Except for one administratively delayed payment received on 25 July 2024, all payments have been made in a relatively timely manner. Under the rating case, KAJV is expected to remain in compliance with its 1.25x finance service cover ratio (FSCR) covenant over the life of the sukuk, with projected minimum and average FSCRs of 2.5x and 2.9x.