This article first appeared in The Edge Financial Daily on December 12, 2019 - December 18, 2019

KUALA LUMPUR: 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 cash flow to service the sukuk is solely derived from MEX 1 Capital’s subsidiary Maju Expressway Sdn Bhd (MEX Expressway).

“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 the MEX highway.

“This in turn has resulted in an improvement in the rating from current BB1 by approximately eight notches to AA3,” said RAM.

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.