[RAM] RAM Ratings affirms AAA(s) issue ratings of Sarawak state SPVs Infracap Resources and Aquasar Capital

RAM Ratings has affirmed the AAA(s)/Stable ratings of Infracap Resources Sdn Bhd’s RM15 billion Sukuk Murabahah Programme (2021/2041) and Aquasar Capital Sdn Bhd’s RM1.5 billion Sukuk Murabahah Programme (2014/2029). 

Infracap Resources and Aquasar Capital serve as funding conduits for various infrastructure development projects and strategic investments for the Sarawak Government. While Sarawak has not explicitly guaranteed the sukuk issued by these special-purpose vehicles, the ratings of the sukuk take into consideration Sarawak's strong credit position as the State has demonstrated commitment to meet its periodic principal and profit payments through annual budgetary allocation.

The ratings are supported by our expectations that Sarawak will continue to maintain its substantial financial reserves and robust fiscal performance. The ratings are also anchored by Sarawak’s strong economic importance and its political relationship with the Federal Government. Although debts are expected to increase to facilitate infrastructure development and to finance strategic investments in the medium term, this is balanced by the anticipated enhancement in revenue generation. RAM also takes comfort in Sarawak’s proven track record of prudent financial management. 

In 2023, the growth of Sarawak’s gross domestic product (GDP) slowed to 1.2% after a strong economic rebound in the preceding year, attributed to the resumption of economic activity post pandemic (2022: 6.9%). This falls below the earlier forecast of 5.0% - 6.0% due to weaker export performance amid a more challenging global economic landscape. Sarawak's export value declined by 15.3% due to lower commodity prices and demand. For 2024, Sarawak’s GDP growth is expected to improve to between 5% to 6%, supported by a recovery in global trade and domestic demand. 

Sarawak anticipates a 2% increase in revenue to RM12.2 billion in 2023 (2022: RM11.9 billion). Despite the slower economic growth, total revenue exceeded the initial budget of RM11.0 billion. With revenue surpassing expectations, Sarawak recorded a higher fiscal surplus of RM1.0 billion, compared to the earlier budgeted surplus of RM238 million. Under Budget 2024, Sarawak expects to record a fiscal surplus of RM386 mil, supported by a healthy improvement in revenue.

Sarawak’s strong fiscal performance allowed it to gradually reduce its borrowings, including those issued under financing SPVs. Its total adjusted debt declined by 2% to RM7.8 bil as at end-2023 (end-2022: RM8.2 bil). Sarawak’s adjusted debt-to-GDP remains very low at 5.3% (end-2022: 5.8%). The relatively low debt levels and strong reserve levels allow Sarawak adequate headroom to borrow. Over the medium term, we anticipate an increase in debts to support infrastructure development and to finance strategic investments. However, we expect this to be offset by further improvements to revenue generation.


Analytical contact
Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my

Ben Inn
(603) 3385 2510
ben@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my