AZRB - approval from SC

It has received approval from SC to establish a sukuk programme of up to rm1 billion in nominal value.

To recap in Feb 2013, it inked into a concession agreement for the EKVE worth rm1.55 billion. The concession period is for 50 years.

Although the sukuk is for a nominal sum of up to rm1 billion, it is unlikely that the entire sum will be drawn down. Management guided that the rm1.55 billion EKVE will be financed via a debt to equity ratio of 80:20 which puts the debt portion at rm1.24 billion.

However, AZRB has already secured a rm635 million from the government. Thus, the drawn down from the sukuk make up for the remaining debt portion is rm606 million.

Market observers are positive on AZRB achieving financial closure for the EKVE as the signals that construction works can begin in 2014. The EKVE makes up 43% of AZRB order book balance of rm3.6 billion. Earnings should come in strongly once AZRB begins to recognize construction profit from the EKVE over the next three years from Dec 2013.

Assuming the sukuk drawn down of rm606 million, it gearing will rise to 3.6 times. Though seems drastic, the fact that the debt for the EKVE will be non recourse to the group.