CREDIT ANALYSIS REPORT

BEWG (M) SDN BHD - 2021

Report ID 6053890045 Popularity 68 views 12 downloads 
Report Date Oct 2021 Product  
Company / Issuer BEWG (M) Sdn Bhd Sector Infrastructure & Utilities - Utilities
Price (RM)
Normal: RM500.00        
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Rationale
Rating action      
MARC has affirmed its AAIS rating on BEWG (M) Sdn Bhd’s (BEWG) RM400 million Sukuk Wakalah with a stable outlook.

Rationale     
BEWG, a 100%-subsidiary of Hong Kong–based Beijing Enterprises Water Group Limited (BEWGL), was set up to undertake water and sewerage projects in Malaysia. In 2015, it secured the Terengganu state government’s contract to refurbish and upgrade water treatment and distribution facilities in Kemaman, Terengganu (Kemaman water project), for which the Sukuk Wakalah was raised. As at end-July 2021, BEWG has RM190 million outstanding sukuk.

The project was completed on March 22, 2021, within budget, albeit delayed from the scheduled July 10, 2020 (extension of time or EOT No. 2).  Project timeline was partly affected by challenges from the COVID-19 pandemic and disruptions during the monsoon season between November 2020 and January 2021, according to the independent consultant engineer.

Per the contract, BEWG is entitled to six payments from the state government totalling RM686.9 million over five years, commencing within 45 days from the date of Certificate of Practical Completion (CPC) (deferred payment period). The CPC remains outstanding to date. However, this has not affected sukuk repayment. We note that BEWG’s first and second sukuk repayments of RM120.0 million in July 2020 and RM90.0 million in July 2021 had been satisfied by cash received from parent company, BEWGL.

The rating benefits from a one-notch rating uplift on the credit strength of BEWGL who has given its unconditional and irrevocable corporate guarantee (during construction stage) and a letter of undertaking to provide liquidity support to BEWG post-construction completion. We expect financial support from BEWGL to continue to be forthcoming when required, as has been demonstrated in the past. BEWGL has a solid financial profile and a large liquidity buffer (with cash and cash equivalents of HK$15.3 billion or about RM7.9 billion as at end-2020), which should provide it with the financial flexibility to manage challenges and extend financial support to subsidiaries, if required.

BEWGL is 41.1%-owned by Beijing Enterprises Holdings Limited (BEHL), which in turn is linked to the Beijing municipal government; the Beijing municipal government through the Beijing Assets Supervision and Administration Committee has a 62% indirect ownership in BEHL. Both BEWGL and BEHL are listed on the Hong Kong Stock Exchange. BEWGL operates a large portfolio of wastewater and water treatment plants (WTP) in China, mostly for municipal governments in the country under long-term concession arrangements.

Rating outlook     
The stable rating outlook considers the financial commitment of the shareholder, BEWGL, to contribute to BEWG’s debt service via the letter of undertaking provided. It reflects MARC’s expectation that financial support from BEWGL will remain forthcoming in times of need. Any revision in the rating and/or outlook will hinge on changes in the credit strength of BEWGL and/or the Terengganu state government.

Rating trajectory

Upside scenario     
A positive rating action is unlikely in the short term but might be driven by considerable improvement in the credit strength of BEWGL and/or the Terengganu state government.

Downside scenario     
Downside pressure is unlikely at present but could arise from significant deterioration in the credit strength of BEWGL and/or the Terengganu state government.

Key strengths
  • Strong liquidity support from strong parent, BEWGL 
  • Strong counterparty in Terengganu state government as sole paymaster 


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