MARC Ratings has assigned a preliminary rating of AAIS to Berapit Mobility Sdn Bhd’s (BMSB) proposed Sustainability Islamic Medium-Term Notes Programme (sukuk programme) of up to RM1.5 billion. The outlook on the rating is stable.
The rating reflects the size and predictability of operating cash flow under the long lease agreements of 25 years, the protective features of the ring-fenced financing structure, and a very strong lease counterparty in the form of the federal government statutory body Railway Assets Corporation (RAC). The rating also factors in parent and project sponsor SMH Rail Sdn Bhd’s strong capabilities in rolling stock manufacturing, assembly, and maintenance, repair and operations (MRO), as well as its healthy 20-year track record of timely project completion. These strengths are moderated by contract termination risk, execution risk, as well as potential delays in receipt of lease payments.
Under the transaction, BMSB will purchase and refurbish/replace 50 locomotives (including six spares) and 246 wagons from RAC under sale-and-leaseback agreements. This will be partly financed by proceeds from the rated sukuk programme, with lease payment streams from RAC forming the source of repayments. BMSB’s average projected annual operating cash flow of RM101.9 million is more than sufficient to meet sukuk principal repayments for the first 15 years and provides headroom for cash build-up for subsequent years when lease rates decline. Cash flow predictability is underpinned by BMSB’s entitlement to at least 24 days of monthly lease payments, as long as it meets contracted performance requirements for rolling stock availability. To this end, SMH Rail’s experience in rolling stock manufacturing and MRO would ensure BMSB has the capacity to maintain the rolling stock assets to meet the required availability and performance standards. To further mitigate risks of loss or damages, including force majeure, to the wagons and locomotives, BMSB plans to secure industry-standard mobile plant and equipment policies on its locomotives and wagons.
The lease payments will also be ring-fenced in designated accounts. Under the base case projections, which assume BMSB’s minimum lease entitlement as well as a six-month collection cycle, minimum and average finance service coverage ratios (FSCR) would stand at 1.50x and 1.62x. The rating agency notes that there is potential upside to cash flow if the company’s rolling stock records higher utilisation rates (above 80%) and/or collections from RAC are faster than expected.
Under MARC Ratings’ sensitised case, which considers a one-month delay in project delivery, the FSCR is projected to remain above 1.50x save in the initial years (FY2026-FY2028). In this regard, the rating agency takes comfort from SMH Rail’s undertaking to maintain a minimum FSCR of 1.50x at BMSB throughout the sukuk tenure.
MARC Ratings considers contract termination risk to be low given the importance of rolling stock to RAC and the limited expertise available to undertake projects of this nature given the high barriers of entry in the form of technology, client relationships and industry qualifications. The rating agency also views the demand for rail freight as positive in the long term; as a mode of transport with one of the smallest carbon footprints, rail freight will likely benefit from policies to reduce emissions and energy consumption.