MARC has reaffirmed the ratings of Musyarakah One Capital Berhad’s (“Musyarakah One”) Sukuk Musyarakah Series 2005-A and Series 2005-B at AAAID. The ratings reaffirmation reflects the 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; the GOM’s prompt payments to date; and the importance placed by the GOM on 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 issuing Sukuk Musyarakah and acquiring receivables from the Originator, TIME Systems Integrators Sdn. Bhd. (“TSI”). The RM2,500 million Sukuk Musyarakah Programme (the Programme) allows receivables generated from TSI’s supply contracts to be sold to Musyarakah One periodically. The receivables comprise 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 for the provision of related 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 fulfillment of certain supply obligations by TSI, the GOM issues a 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 obligation to pay the agreed contract sum in accordance with the schedule in the Sijil Utama without any right of set-off.

The two issuances to date are Sukuk Musyarakah Series 2005-A and Series 2005-B, which were issued on 4th April 2005 and 5th August 2005, respectively. Series 2005-A, which amounts to RM566.555 million, was issued in five tranches backed by Sijil Utama 2005-A following the completion of the supply of teaching equipment 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 comprises five annual instalments payable from 2006 to 2010, the first two of which (RM115.36 million each) were received as scheduled on 4th April 2006 and 2007, respectively. 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 equipment and services for schooling year 2005 pursuant to the Letter of Award from the GOM dated 4 November 2004. The GOM’s repayments for this series are due in two installments, payable in 2006 and 2007, the first of which was received on 4th August 2006 totalling RM50.0 million.

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 equipment. The GOM does not have the right to set-off any claims against the securitised receivables. 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.