[RAM] RAM Ratings affirms Encorp Systembilt's AA1 sukuk rating

RAM Ratings has affirmed the AA1/Stable rating of Encorp Systembilt Sdn Bhd’s (Encorp or the Company) RM1.575 bil Sukuk Murabahah. 

Encorp’s debt servicing ability is expected to remain robust, safeguarded by the steady inflow of monthly concession payments and restrictions on the Company’s activities and distributions. The contractual cash inflows Encorp receives from the government, pursuant to its development of 10,000 units of teachers’ quarters throughout Malaysia (completed in 2004), are also free of performance-related deductions. 

The Company’s finance service coverage ratio (FSCR, with cash balances, calculated over a 12-month period) is expected to stay above 1.50 times throughout the Sukuk’s tenure, commensurate with an AA1 rating. Despite our assumption of delays, concession payments were timely, coming in within a 27-day average in 2023, while expenses were within the transaction’s permissible limits. Encorp faces minimal counterparty risk as the government is the ultimate paymaster.

As the last tranche of the Sukuk matures three months after the concession expires in February 2028, room for refinancing or restructuring is minimal. Encorp’s projected cash balances after the final principal repayment should provide a buffer of approximately seven months’ contractual payments.

The risk of the concession’s termination is deemed remote. If a default by the Company leads to termination, the sukukholders’ position is protected under the transaction. In the case of a default on the government’s part, the timing and quantum of compensation is uncertain.

Analytical contacts
Julian Chan
(603) 3385 2486

Davinder Kaur Gill
(603) 3385 2525

Media contact
Sakinah Arifin
(603) 3385 2500