KUALA LUMPUR: NERS Sdn Bhd’s special purpose company Alpha Circle Sdn Bhd has proposed to raise RM595mil under a Sukuk Musharakah programme.
Malaysian Rating Corporation (MARC) said on Wednesday it had assigned preliminary ratings of AA-IS and AIS on Alpha Circle’s proposed RM540mil Senior Sukuk Musharakah (Senior Sukuk) and RM55mil Junior Sukuk Musharakah (Junior Sukuk) respectively under the Sukuk Musharakah programme.
“The ratings carry a stable outlook. The two-notch rating differential between the Senior Sukuk and the Junior Sukuk reflects the latter’s subordinated ranking in priority of payment and security,” said the rating agency.
MARC said proceeds from the sukuk issuance would be largely utilised to fully redeem Alpha Circle’s outstanding RM350mil under the existing Musharakah medium term notes (MMTN) programme.
To recap, the MMTNs were issued in January 2012 to finance the implementation of NERS) National Enforcement and Registration System project (NERS project) under a 12-year Public-Private Partnership (PPP) contract awarded by the Government of Malaysia (GoM) in July 2011.
MARC added the balance of the proceeds under the programme would be partly used to fund NERS’ contractual obligations of RM160mil to S5 Systems Sdn Bhd (S5S), the support and maintenance service provider for the NERS project, with the remainder utilised for working capital.
It said the assigned ratings incorporated the successful implementation of the critical phase of the NERS project in 2011, the operational track record of the NERS project which provides a secured registration system of foreigners in Malaysia and the credit quality of the payment stream received from GoM.
MARC also considered the adequacy of NERS’ projected cash flows to meet its financial obligations under the rated Sukuk Musharakah programme.
“The ratings are, however, constrained by the susceptibility of project cash flows to the volume of legal foreign worker inflows which is reliant on economic conditions and government policies on foreign labour,” it said.
MARC added NERS’ revenue highly correlated to the volume of legal foreign workers in the country as it received RM50 payment from the government for each legal foreign worker permit issued/renewed by the Immigration Department of Malaysia.
MARC noted since the operations started in June 2011, the Immigration Department had issued a 12.7% higher monthly average foreign worker permits from an initial forecast of 156,667 per month.
As at end-December 2012, total legal foreign labour force is estimated to have grown past 2.0 million from 1.88 million as at end-December 2010.
The trend of higher registration of foreign workers since the implementation of the NERS project has strengthened the project’s cash flow; nonetheless, the financial obligations from Alpha Circle’s higher borrowings of RM595 million under the proposed Sukuk Musharakah programme would to an extent offset any improvement in cash flow metrics.