MARC has reaffirmed the AAAIS  rating of Musyarakah One Capital Berhad’s (“Musyarakah One”) Sukuk Musyarakah Series 2005-A. The rating reflects the transaction structure of the receivables-backed sukuk issuance as well as the underlying credit quality of the sole obligor, the Government of Malaysia (GOM). The receivables backing the sukuk constitute irrevocable and unconditional obligations of the GOM. Additionally, the GOM has established a record for timely payment, which is evidenced by the full redemption of Sukuk Musyarakah Series 2005-B in August 2007.

Musyarakah One is a special purpose vehicle incorporated for the purpose of issuing sukuk musyarakah to finance the acquisition of receivables from TIME Systems Integrators Sdn. Bhd. (“TSI” or the “Originator”). Under the RM2,500 million Sukuk Musyarakah Programme (the Programme), government receivables generated from TSI’s supply contracts may be sold to Musyarakah One via an absolute legal assignment, on a periodic basis. Investors in the sukuk musyarakah are essentially the beneficial owners of the receivables. 

The receivables comprise the rights, title, interests and benefits to the GOM’s payment obligations 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, in implementing a programme for teaching Science and Mathematics in English. Subsequent to each delivery of equipment and/or services, the GOM issues a Sijil Utama, which stipulates the contract sum payable by the GOM as well as the repayment schedule in respect of the contract sum, which will be on a deferred payment basis. The Sijil Utama represents the GOM’s irrevocable and unconditional obligation to pay the agreed contract sum in accordance with the stipulated schedule without any right of set-off or provision for acceleration in the event of default under the Programme.

To date there have been two issuances under the Programme, i.e. Sukuk Musyarakah Series 2005-A and Sukuk Musyarakah Series 2005-B, which were issued on 4th April 2005 and 5th August 2005, respectively. Series 2005-A, which amounts to RM566.56 million, was issued in five tranches backed by Sijil Utama 2005-A following the supply of teaching equipment and services for schooling year 2004 pursuant to the Letter of Award from the GOM dated 22 October 2003. The GOM is obligated to make five annual instalments from 2006 through 2010 under Sijil Utama 2005-A. The first three installments of RM115.36 million each were received as scheduled on their respective payment dates. Series 2005-B, which was fully redeemed in August 2007, comprised 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.

Sukukholders are not exposed to performance risk as receivables are securitized subsequent to delivery, installation, testing and commissioning of teaching equipment. In addition, the GOM does not have the right to set-off any claims against the securitized receivables. The payment profile for the Sukuk mirrors the payments from the GOM under Sijil Utama 2005-A. In case of any shortfall in collections, funds in the General Reserve Account (GRA) amounting to RM1.11 million as at May 6th, 2008 can be relied upon to provide liquidity. The tax liability for Musyarakah One is computed on an entity basis and has thus far been sufficiently met by funds in the Tax Reserve Account without necessitating any transfers from the GRA or the Series Collection Account (SCA).