The preliminary rating is further supported by Wego’s superior debt-servicing ability. Backed by a predictable stream of Repayment Charges (RC) amounting to MYR 25.92 million per annum, the Company is expected to sustain strong stressed minimum and average finance service cover ratios of 1.80 times and 1.89 times, respectively, throughout the tenure of the Proposed Sukuk. The tight financing structure and restrictive covenants of the transaction as well as the absence of operating risk further minimise potential cashflow leakage. Elsewhere, counterparty risk is deemed low as the obligor of concession payments is the Perak State Government, which has a counterparty rating of AAA under RAM’s methodology for rating Malaysian state governments (published in June 2014).
However, timeliness is a key risk factor post-completion, as Wego will rely heavily on annual concession payments from the State to meet its obligations in respect of the Proposed Sukuk. Teething problems at the initial stage of payment are common and could delay the disbursement of RCs. The transaction is also exposed to the risk of termination of the CA. Non-performance on the part of either Wego or the State will result in the termination of the transaction, which will disrupt contractual payments from the State and affect the Company’s ability to meet its obligations under the Proposed Sukuk. That said, the risk of non-performance by Wego is low as there is no requirement for operating or monitoring the schools post completion.
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com