RAM Ratings has assigned a preliminary rating of AA3/stable to MEX 1 Capital Bhd’s (formerly known as Bright Focus Bhd) RM1.225 billion Islamic medium term note (MTN).
In a statement, RAM said the proposed issuance shall facilitate the proposed restructuring of the current sukuk rated BB1 via a sukuk-for-sukuk swap exercise, wherein the current sukuk will be exchanged for the new sukuk.
It said the underlying cashflows to service the sukuk is solely derived from MEX 1 Capital’s unit, Maju Expressway Sdn Bhd (MEX Highway).
“The proposed sukuk addresses the issuer’s current vulnerable liquidity position by rearranging the repayment profile with a slightly longer tenure, as well as restructuring the operations and maintenance associated with MEX highway. This in turn has resulted in an improvement in the rating from current BB1 by approximately eight notches to AA3,” RAM said.
The ratings agency pointed out that the minimum financing service coverage ratio for the proposed issuance stands at 2.63 times, which is much higher when compared with a sukuk of a similar rating of AA3 of 2.25 times.
It said the financing service coverage ratio is a key credit metric to gauge the level of projected cash surplus generated against the repayment of principal and payment of profit under the sukuk for the relevant year.
“Point to note, the higher the coverage, better, because it provides a higher level of credit safety. Credit rating agencies typically, as part of their rating exercise, form certain views when considering a credit rating of a typical sukuk/bond issue,” RAM said.
The ratings agency also noted that the highway has been charting an annual compounded growth rate (CAGR) of 11.5% since it began operations in 2008, despite weakness at the Salak South toll plaza in the last two years, due to congestion along Jalan Tun Razak.
Source The Edge Markets