MARC has affirmed the ratings of Musyarakah One Capital Berhad’s (“Musyarakah One”) Sukuk Musyarakah Series 2005-A and Series 2005-B at AAAID. The ratings affirmation reflects the superior credit strength of the Government of Malaysia (“GOM”) being the paymaster via its obligation under the Sijil Utama 2005-A and 2005-B which have been legally assigned to Musyarakah One; and the continued strong emphasis by the GOM on the importance of education and training as reflected under the Ninth Malaysia Plan.

Under this transaction, a bankruptcy remote special purpose vehicle, Musyarakah One was incorporated for the purpose of acquiring receivables from the Originator, TIME Systems Integrators Sdn. Bhd. (“TSI”) and issuing Sukuk Musyarakah for the purpose of acquiring receivables which comprise of the rights, title, interests and benefits to the payment obligations of the 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 (if any), from time to time, to implement a programme for teaching Science and Mathematics in English. 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 which will be on a deferred payment basis. Upon issuance, the Sijil Utama represents the 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. 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. 

The RM2,500 million Sukuk Musyarakah Programme (the Programme) allows receivables generated from TSI’s supply contracts to be sold to Musyarakah One from time to time. Hence, the sale of receivables arising from such contracts may be financed through future issuances of Sukuk Musyarakah under the Programme.  As at todate, Musyarakah One has issued two series being Sukuk Musyarakah Series 2005-A and Series 2005-B on 4 April 2005 and 5 August 2005 respectively. Series 2005-A, the first Sukuk Musyarakah series which amounted to RM566.555 million was issued in five tranches backed by Sijil Utama 2005-A following the completion of the supply of teaching equipments and services for schooling year 2004 pursuant to the Letter of Award from the GOM dated 22 October 2003. Instalment payments from the GOM under Sijil Utama 2005-A comprise of five annual instalments from 2006 to 2010 whereby the first instalment from the GOM was received on 4 April 2006 for RM115.36 million as scheduled.

Series 2005-B, the second Sukuk Musyarakah series, was issued in two tranches totalling RM103.62 million backed by Sijil Utama 2005-B following the completion of the supply of teaching equipments and services for schooling year 2005 pursuant to the Letter of Award from the GOM dated 4 November 2004. The GOM is scheduled to make two instalment payments under Sijil Utama 2005-B, ie in 2006 and 2007 with the first instalment payment of RM50.0 million due on 4 August 2006.

Performance risk under Sukuk Musyarakah Series 2005-A and Series 2005-B 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. Liquidity risk is mitigated by payments under the Sukuk Musyarakah Series 2005-A and Series 2005-B being matched by payments from the GOM as stipulated under Sijil Utama 2005-A and Sijil Utama 2005-B respectively.

Under the transaction, the investors are essentially the beneficial owners of the receivables.  An event of default 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 and 2005-B or any other Sijil Utama cannot be accelerated.