AZRB CAPITAL SDN BHD |
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| Report ID | 605334 | Popularity | 960 views 64 downloads | |||||
| Report Date | Dec 2020 | Product | ||||||
| Company / Issuer | AZRB Capital Sdn Bhd | Sector | Infrastructure & Utilities | |||||
| Price (RM) |
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| Rationale |
MARC has affirmed its AA-IS rating on AZRB Capital Sdn Bhd’s (ACSB) issuance of RM535.0 million Islamic Medium-Term Notes (Sukuk Murabahah) with a stable outlook. ACSB is a wholly-owned subsidiary of Ahmad Zaki Resources Berhad (AZRB) and was set-up for the sole purpose of subscribing to the Redeemable Convertible Preference Shares (RCPS-i) issued by sister company Peninsular Medical Sdn Bhd (PMSB) using proceeds from the Sukuk Murabahah issuance. In return, PMSB has assigned to ACSB its concession receivables in the form of availability payments (AP) and maintenance charges (MC) under a government concession agreement (CA) to design, build and maintain a 300-bed teaching hospital for International Islamic University of Malaysia (IIUM) in Kuantan. The teaching hospital (IIUM Medical Centre) has been operational since 2016. The affirmed rating incorporates the strength of the concession receivables from the government which are channelled to ACSB’s designated accounts for the sukuk payment obligations. The expiry of the CA in 2038, later than the maturity of the sukuk in 2031, provides additional comfort. The credit profile of sponsor-cum-shareholder, AZRB, the parent of both ACSB and PMSB, remains a moderating factor. AZRB has provided a guarantee on the issuer’s financial obligations. Nonetheless, ACSB is insulated from risks associated with AZRB by its bankruptcy remote status with the shares in PMSB assigned to sukukholders. PMSB has no other financial obligations save for those under the AZRB-subscribed RCPS-i. During 1Q2020, ACSB received concession receivables from PMSB as projected. It receives monthly AP and MC of about RM5.8 million and RM3.2 million. The monthly transfer of funds for PMSB’s opex requirement from ACSB has also been in line with the asset maintenance forecast. As at 1Q2020, ACSB has cash holding of about RM79.4 million. The first principal payment of the sukuk amounting to RM100.0 million falls due in 2022, providing some time for ACSB to build up its cash reserves. In respect of the maintenance services for IIUM Medical Centre, these are undertaken by Advance Pact Sdn Bhd, a provider of such services for 22 other government hospitals domestically and other hospitals in the Middle East region. PMSB has a back-to-back arrangement with Advance Pact in which any deduction in maintenance fees from IIUM will be passed on to Advance Pact. The rating agency understands that there has been no breach in Advance Pact’s obligations at IIUM Medical Centre to date. AZRB has an established track record in the engineering and construction (E&C) sector and has expanded to the property, concession, plantation, as well as oil and gas sectors. Its financial performance in 1H2020 and 2019 was weighed down by one-off construction expenses and forex translation losses from its plantation in Indonesia, leading to a weaker financial performance. AZRB’s major project, the 36.16-km East Klang Valley Expressway (EKVE), is undertaken by wholly-owned subsidiary EKVE Sdn Bhd, which is the concessionaire of the expressway. Completion is expected by mid-2021 with a total estimated construction cost of about RM1.55 billion. Due to the project’s debts, AZRB’s borrowings remain high at RM2.98 billion as at end-1H2020. Excluding the project-related financing, the group’s net DE ratio would stand at about 2.56x against a total equity of RM363 million as at end-June 2020. The stable outlook reflects MARC’s expectation that ACSB will continue to receive concession receivables to meet its contractual obligations under the transaction structure over the next 12-18 months. Major Rating Factors Strengths
Challenges/Risks
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