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Thursday, 10 December 2015

RAM Ratings assigns top rating to Wego’s proposed Sukuk

Substantial comfort is derived from a Performance Guarantee (PG) of up to RM210 million extended to the Sukuk holders by United Overseas Bank (Malaysia) Berhad (UOBM) (rated AAA/Stable/P1), effective during the construction period. Under the PG, UOBM irrevocably and unconditionally undertakes to pay the nominal value of the Proposed Sukuk following the occurrence of an Event of Default, which includes the failure to complete construction within the stipulated time frame of up to 24 months from the construction commencement date. The PG largely protects sukuk holders against the adverse effects of any construction delays, which would otherwise constraint the rating.
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.

In addition, RAM notes the possibility of early prepayment by the State Government. Under the CA, the State Government has the option to settle concession payments ahead of the 15-year period, on a lump-sum basis. Based on our calculation, we note that the sum, which is equivalent to the present value of all future RC payments, will always be MYR 50 million more than the total outstanding principal at any point of time. In such an event, Wego is required, under the covenant, to use the entire sum to redeem the Proposed Sukuk before any payments relating to construction cost can be made.

Prior to inking the CA, Wego, a licensed contractor, had undertaken and tendered for construction jobs. Going forward, the Company will cease to take on new jobs and focus solely on the Project. Accordingly, the covenants of the Proposed Sukuk require Wego to novate all other future projects.

(C P I Financial / 09 December 2015)
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Islamic Finance Institute Goes Global to Fill a Skills Void in $2 Trillion Industry

A Malaysian institute set up seven years ago to improve education standards for Islamic finance professionals is going global as it seeks to fill a void of experts with specialties such as insurance and law.
The Chartered Institute of Islamic Finance Professionals in Kuala Lumpur aims to increase membership of qualified practitioners to 3,000 in three years, from 400 now, Badlisyah Abdul Ghani, its president and former chief executive officer of CIMB Islamic Bank Bhd., said in an interview. The CIIF, which changed its name and geographical focus in 2015, is in talks with associations and regulators stretching from the Middle East to Indonesia as part of that campaign, he said.
The $2 trillion industry has long been plagued by a shortage of individuals who have studied beyond the prerequisite skill base and CIIF plans to start offering specialized courses next year to address the problem, which is hindering development, Badlisyah said. The Kuala Lumpur-based Finance Accreditation Agency estimates 56,000 more qualified experts will be needed to fill positions in the next five years as growth accelerates.
“There is a lack of accepted global standards for professional qualifications -- similar to accounting -- the absence of which has created differences in talent skills requirements across jurisdictions,” said Daud Vicary Abdullah, CEO of the International Centre for Education in Islamic Finance in Kuala Lumpur. “The industry is still at a nascent stage where talent development and planning are concerned.”

Common Standard

CIIF was formerly the Association of Chartered Islamic Finance Professionals, which was established in 2008 and whose intake was mainly graduates from Malaysia’s INCEIF. The newly formed institute will help promote members globally and aims to provide a common standard of education acceptable in the various countries offering Shariah-compliant products, Badlisyah said.
The standards and codes of conduct issued by CIIF will be recognized and adopted under the Islamic Finance Profession Charter, which was signed by key Shariah-compliant associations in Malaysia, Badlisyah said. The guidelines will extend to other qualified leading organizations such as the Bahrain-based General Council for Islamic Banks and Financial Institutions and the Indonesian Syariah Banking Association if they sign up, he said, adding that they could eventually be made a requirement across the board.
Asset growth in an industry where interest payments are forbidden showcases the need for trained professionals, with the Kuala Lumpur-based International Shariah Research Academy forecasting a $3 trillion market by 2018.

Mandatory Programs

Sales of Islamic bonds known as sukuk, which scholars need to vet for conformity with religious laws, have climbed to above $45 billion in the past three years, compared with less than $10 billion a decade ago, data compiled by Bloomberg show. Takaful contributions, the equivalent of conventional insurance, are expected to reach $20 billion by 2017 from $14 billion in 2014, according to Ernst & Young LLP.
There’s still a gap in the market for trained experts even as the range and selection of courses expands around the world. There are essentially two types of Shariah professionals, said Abdul Rahman Mohd Yusoff, head of the Shariah department at OCBC Al-Amin Bank Bhd. and also a CIIF member. There are those with a degree in pure Shariah law or Fiqh, or those with an equivalent degree in commercial and business aspects known as Muamalat, he said.
On the other hand, there also graduates with Bachelor’s degrees in non-Islamic disciplines who supplement them with qualifications in Shariah-compliant finance such as Ph.D’s or certificates from other accredited organizations, Abdul Rahman said.

“This makes the degree in Islamic finance an add-on rather than the primary one that will govern their future, lessening the pressure on them to go the extra mile to achieve the qualification,” said Abdul Rahman at the Islamic unit of Oversea-Chinese Banking Corp., Southeast Asia’s second-biggest lender. “To address the shortage, it might be useful to make it mandatory for all staff handling Islamic finance products to sit for at least the certification courses.

(Bloomberg Business / 10 December 2015)
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