[RAM] RAM Ratings affirms SEP's AA1 sukuk rating

RAM Ratings has affirmed its AA1/Stable rating of SEP Resources (M) Sdn Bhd’s (SEP or the Company) RM185 mil ASEAN Sustainability SRI Sukuk Wakalah (2024/2036) (SRI Sukuk). 

The affirmation is premised on the transaction’s strong credit standing and healthy debt coverage indicators, commensurate with the rating. Coupled with stringent cash retention features which disallow distributions to shareholders, the Company’s finance service coverage ratios (FSCRs) are projected to register at a minimum and average 1.72 times and 2.20 times, respectively, for the remaining tenure of the SRI Sukuk. 

As an intermediate investment holding company with no business of its own, SEP’s repayment of the SRI Sukuk relies on concession cash flows from its wholly owned subsidiary, Budaya Positif Sdn Bhd (BPSB). BPSB holds a 22.5-year concession for the development and maintenance of student hostels in Padang Siding, Perlis. The transaction includes covenants, limitations and intercompany financing arrangements to facilitate the flow of monies between the two entities. As such, we view SEP and Budaya Positif as a single economic entity from a rating perspective. 

BPSB’s operating performance remains robust, with an average monthly key performance indicator score of 88% in 2024, and negligible deductions (less than 1% of annual Maintenance Service Charges received). The risk of non-performance is considered low, given the non-complex nature of hostel maintenance work.

SEP’s debt coverage is bolstered by cash reserves of RM49.5 mil as at end-March 2025 and projected annual pre-financing cash flows of RM20 mil. This strong financial profile is expected to be maintained even under RAM’s stressed assumptions, which factor a three-month Availability Charge payment delay and 5% annual increase in operating expenditures. Structural features that limit indebtedness and distribution to shareholders further support the rating by minimising risk of cashflow leakages. 

Balancing these strengths is SEP’s highly leveraged capital structure and the remote risk of the concession’s termination. In the event of termination, the corporate guarantee extended by Pesona Metro Holdings Berhad - which owns 70% of SEP – may provide financial relief. Pesona Metro Holdings is a mid-sized construction, manufacturing and trading company listed on Bursa Malaysia.


Analytical contacts
Neo Xue Wei, CFA
(603) 2708 8241
xuewei@ram.com.my

Davinder Kaur Gill
(603) 2708 8220
davinder@ram.com.my

Media contact
Sakinah Arifin 
(603) 2708 8212
sakinah@ram.com.my