Wednesday, Jan 15, 2020
MARC has affirmed its
ratings on Alpha Circle Sdn Bhd’s RM540 million Senior Sukuk Musharakah and
RM55 million Junior Sukuk Musharakah at AA-IS and AIS.
The ratings outlook has been revised to stable
from negative.
The outlook revision incorporates the improvement in the volume of foreign worker permits issued since the conclusion of the government-initiated rehiring programme in June 2018. During the 12 months ending June 30, 2019, the number of foreign worker permits issued rose to 2.30 million compared to 1.94 million a year earlier. The increase
has substantially eased the rating agency’s concerns on Alpha Circle’s ability
to meet its covenanted finance service cover ratio (FSCR) of 1.75x. The ratings
affirmation considers the certainty of payments as the government is required
to pay NERS Sdn Bhd RM50 for each foreign worker permit issued or renewed. This
assured payment is captured in designated accounts to meet the financial
obligations under the rated sukuk programmes. Moderating the rating is the high
susceptibility to government policies and economic growth that can impact
foreign worker recruitment.
Alpha Circle is the
funding vehicle of NERS, the contractor for the 12-year Public-Private
Partnership contract to undertake the registration of foreigners entering and
leaving Malaysia. The contract ends in July 2023 after the expiry of the rated
programmes. For its services, NERS receives RM50 for every work permit issued
to or renewed by a foreign worker.
For financial year ended
June 30, 2019 (FY2019), revenue and operating profit rose to RM113.0 million
and RM26.5 million on the back of 2.30 million foreign work permits issued
(FY2018: RM94.8 million; RM19.3 million). FSCR for the year stood at 1.80x (FY2018:
1.75x). Based on the cash flow projections for the remaining years of the sukuk
tenure, assuming annual foreign work permit issuances of 2.15 million, Alpha
Circle’s FSCR would range between 1.76x and 1.87x over the remaining tenure of
the programme ending 2023.
MARC notes that in recent
years, Alpha Circle’s ability to build a cash buffer to meet the covenanted
FSCR had been affected by a decline in the volume of foreign worker permits
issued due to government policy changes on foreign worker hires. To support its
cash buffer, its shareholder NERS had injected RM20.1 million into the project
Finance Service Account due to the lower-than-expected volume of foreign worker
permit issuances. Its shareholder has given an undertaking to make further cash
injections should the need arise.
Alpha Circle has
eliminated refinancing risk by aligning sukuk maturity with the programme
reduction schedule. In November 2019, Alpha Circle refinanced RM110 million
sukuk to be in line with the programme reduction schedule. The current
outstanding under the senior sukuk is RM230 million and junior sukuk is RM55
million.
Contacts:
Meyresh Vignaswaran, +603-2717 2945/ meyresh@marc.com.my;
Taufiq Kamal, +603-2717 2951/ taufiq@marc.com.my