Friday, Apr 01, 2005
Malaysian Rating Corporation Berhad (MARC) has assigned a long term rating of AAAID to Musyarakah One Capital Berhad’s RM566.56 million Sukuk Musyarakah Series 2005-A.
Under this transaction, a bankruptcy remote special purpose vehicle, Musyarakah One Capital Berhad (“Musyarakah One”), has been incorporated for the purpose of acquiring receivables from the Originator, TIME Systems Integrators Sdn. Bhd. (“TSI”). Musyarakah One will issue Sukuk Musyarakah for the purpose of the said acquisition. Receivables comprise of rights, title, interests and benefits to the payment obligations of the Government of Malaysia (“GOM”) to TSI pursuant to the contract and letter(s) of award to supply teaching equipment and provision of services to various schools and certain government areas, from time to time, to implement a programme for teaching Science and Mathematics in English.
On 22 October 2003, GOM had awarded TSI, a wholly-owned subsidiary of TIME Engineering Berhad (“TIME”), with a contract to supply certain teaching equipment and services for school year 2004 to all schools in the country and certain designated government areas (if any). Payment from the GOM will be made on a deferred payment basis to be stipulated in the facility payment certificate (“Sijil Utama”). Upon issuance, the Sijil Utama will represent GOM’s irrevocable and unconditional payment obligations (without set-off) to pay the agreed contract sum in accordance with the schedule in the Sijil Utama.
Supply of teaching equipment for the 2004 schooling session was completed on 28 February 2004. TSI may also be awarded supply contract for upcoming school years. The sale of receivables arising from such contracts may be financed through future issuances of Sukuk Musyarakah under the Sukuk Musyarakah Programme. Subsequent to each supply including the fulfilment of certain supply obligations by TSI, the GOM shall issue Sijil Utama which stipulates the contract sum payable by the GOM and the repayment schedule in respect of the contract sum. Receivables are created upon issuance of the Sijil Utama which essentially represents the GOM’s irrevocable and unconditional obligation to pay TSI or any of its assignees with no right of set-off, deductions, counterclaims or adjustments to be made. Sukuk Musyarakah Series 2005-A, the first musyarakah series will be issued in five tranches to acquire receivables generated from supplies made under the Letter of Award dated 22 October 2003. Instalment payments from the GOM in respect of Sukuk Musyarakah Series 2005-A will commence in 2006, one year from the date of issue of Sukuk Musyarakah Series 2005-A. The receivables will be sold via absolute legal assignment to Musyarakah One.
Under Musyarakah, typically two or more investors will contribute capital to a proposed venture. The investors will agree beforehand on the profit sharing ratio. Under this transaction, Musyarakah One will act on trust on behalf of the investors to acquire undivided beneficial interest in the Receivables. Each investor’s profit sharing ratio as well as loss sharing ratio will be pro-rated in accordance with the respective investor’s capital contribution.
Performance risk under the proposed issuance is mitigated as receivables are securitised subsequent to delivery, installation, testing and commissioning of teaching equipments. In addition, the GOM does not have the right to set-off any claims against the securitised receivables whereby any claims must be made directly against TSI. As performance risk is mitigated, the proposed Sukuk Musyarakah Programme essentially reflects the superior credit strength of the GOM.
The timing of repayment of each Sukuk Musyarakah has been structured to coincide with the repayment of the GOM under the Sijil Utama. Under the transaction, the investors are essentially the beneficial owners of the receivables. Event of default (EOD) under the programme include amongst others, the failure of GOM to honour its obligations under the Sijil Utama. However, an EOD under the programme does not constitute an EOD under the Sijil Utama and hence payment of amounts not due and payable under the Sijil Utama 2005-A or any other Sijil Utama cannot be accelerated.
Under this transaction, a bankruptcy remote special purpose vehicle, Musyarakah One Capital Berhad (“Musyarakah One”), has been incorporated for the purpose of acquiring receivables from the Originator, TIME Systems Integrators Sdn. Bhd. (“TSI”). Musyarakah One will issue Sukuk Musyarakah for the purpose of the said acquisition. Receivables comprise of rights, title, interests and benefits to the payment obligations of the Government of Malaysia (“GOM”) to TSI pursuant to the contract and letter(s) of award to supply teaching equipment and provision of services to various schools and certain government areas, from time to time, to implement a programme for teaching Science and Mathematics in English.
On 22 October 2003, GOM had awarded TSI, a wholly-owned subsidiary of TIME Engineering Berhad (“TIME”), with a contract to supply certain teaching equipment and services for school year 2004 to all schools in the country and certain designated government areas (if any). Payment from the GOM will be made on a deferred payment basis to be stipulated in the facility payment certificate (“Sijil Utama”). Upon issuance, the Sijil Utama will represent GOM’s irrevocable and unconditional payment obligations (without set-off) to pay the agreed contract sum in accordance with the schedule in the Sijil Utama.
Supply of teaching equipment for the 2004 schooling session was completed on 28 February 2004. TSI may also be awarded supply contract for upcoming school years. The sale of receivables arising from such contracts may be financed through future issuances of Sukuk Musyarakah under the Sukuk Musyarakah Programme. Subsequent to each supply including the fulfilment of certain supply obligations by TSI, the GOM shall issue Sijil Utama which stipulates the contract sum payable by the GOM and the repayment schedule in respect of the contract sum. Receivables are created upon issuance of the Sijil Utama which essentially represents the GOM’s irrevocable and unconditional obligation to pay TSI or any of its assignees with no right of set-off, deductions, counterclaims or adjustments to be made. Sukuk Musyarakah Series 2005-A, the first musyarakah series will be issued in five tranches to acquire receivables generated from supplies made under the Letter of Award dated 22 October 2003. Instalment payments from the GOM in respect of Sukuk Musyarakah Series 2005-A will commence in 2006, one year from the date of issue of Sukuk Musyarakah Series 2005-A. The receivables will be sold via absolute legal assignment to Musyarakah One.
Under Musyarakah, typically two or more investors will contribute capital to a proposed venture. The investors will agree beforehand on the profit sharing ratio. Under this transaction, Musyarakah One will act on trust on behalf of the investors to acquire undivided beneficial interest in the Receivables. Each investor’s profit sharing ratio as well as loss sharing ratio will be pro-rated in accordance with the respective investor’s capital contribution.
Performance risk under the proposed issuance is mitigated as receivables are securitised subsequent to delivery, installation, testing and commissioning of teaching equipments. In addition, the GOM does not have the right to set-off any claims against the securitised receivables whereby any claims must be made directly against TSI. As performance risk is mitigated, the proposed Sukuk Musyarakah Programme essentially reflects the superior credit strength of the GOM.
The timing of repayment of each Sukuk Musyarakah has been structured to coincide with the repayment of the GOM under the Sijil Utama. Under the transaction, the investors are essentially the beneficial owners of the receivables. Event of default (EOD) under the programme include amongst others, the failure of GOM to honour its obligations under the Sijil Utama. However, an EOD under the programme does not constitute an EOD under the Sijil Utama and hence payment of amounts not due and payable under the Sijil Utama 2005-A or any other Sijil Utama cannot be accelerated.