CREDIT ANALYSIS REPORT

PROJEK LEBUHRAYA USAHASAMA BERHAD - 2015

Report ID 5249 Popularity 2299 views 39 downloads 
Report Date Apr 2016 Product  
Company / Issuer Projek Lebuhraya Usahasama Berhad Sector Infrastructure & Utilities - Toll Road
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Rationale

MARC has affirmed its AAAIS rating on tolled road concessionaire Projek Lebuhraya Usahasama Berhad's (PLUS) RM23.35 billion Sukuk Musharakah Programme (sukuk) with a stable outlook. PLUS holds a portfolio of tolled expressways, of which the 772-km North-South Expressway (NSE) is its key expressway and main contributor to group revenue.

The rating incorporates a two-notch rating uplift from PLUS’ standalone rating of AA on the basis of support assumption from the government with respect to the sukuk. The support assumption takes into account the interdependence between default events for the rated sukuk and the RM11.0 billion government-guaranteed sukuk (GG Sukuk) that matures after the rated programme. MARC also considers the government’s golden share and indirect major shareholding in PLUS as well as the critical role of the NSE in the country’s transportation system.

PLUS’ standalone rating is underpinned by its satisfactory cash flow coverages on the back of stable traffic performance from a portfolio of matured toll concessions namely PLUS expressways (including the New Klang Valley Expressway (NKVE) and the NSE), the North-South Expressway Central Link (NSECL), the Malaysia-Singapore Second Link (MSSL), the Butterworth-Kulim Expressway (BKE) and the Penang Bridge. Moderating these strengths are the company’s high gearing level and the potential impact on traffic volume from upcoming highways and alternative transportation modes.

PLUS’ overall traffic performance for 9M2015 remained consistent with the traffic projections; the NSE registered a 3.7% growth in traffic volume to 12.8 billion passenger car unit-kilometres (PCU-km). The NKVE recorded a strong growth of 8.1% to 2.2 billion PCU-km, driven by the opening of the fourth lane in July 2015. The NSECL registered the highest traffic growth of 11.4% among PLUS’ concession assets on the back of increasing traffic volume to the Kuala Lumpur international airports and a new factory outlet mall. Traffic volume on the Penang Bridge, which was previously affected by the opening of the Second Penang Bridge in March 2014, grew 3.4% to 81,636 vehicles per day while the MSSL continued to benefit from the commencement of toll operations on the competing Eastern Dispersal Link Expressway with a 5.0 % improvement on its traffic volume to 107,836 vehicles per day. The BKE’s traffic volume which grew 4.1% in 9M2015, continued to trail projections, reflecting the low toll acceptance in the region due to the availability of alternative roads.

For 9M2015, PLUS’ revenue of RM2,566.9 million was in line with the traffic performance of its concession assets. Correspondingly, the company’s cash flow from operations increased to RM1,945.7 million (9M2014: RM1,695.7 million) and was sufficient to cover debt service obligations of RM1,522.7 million. PLUS’ finance service coverage ratio (FSCR) also remained adequate at 2.68 times. While the leverage ratio deteriorated as a result of higher accumulated losses due to high amortisation charges on the concession assets and sizeable financing costs and coupon payments for loan stocks, PLUS retained a healthy liquidity position with cash and bank balances of RM2.6 billion as at October 30, 2015 to meet the post-distribution FSCR covenant of 2.00 times.

The updated base case cash flow projections demonstrate PLUS’ ability to maintain a pre-distribution FSCR of at least 2.79 times. The sensitivity analyses reveal PLUS’ cash flow coverage is more affected by traffic underperformance compared to toll rate increases. This is mainly attributed to PLUS’ relatively lower future toll increases of 5% every three years commencing in 2016 as compared to other toll concessionaires. MARC notes that the scheduled toll hikes in 2016 will be accompanied by the standardisation of toll rates multiplier for Class 2 (from 1.5 to 2.0) and Class 3 (from 2.0 to 3.0) vehicles on PLUS expressways and the NSECL. PLUS’ debt service capacity could be affected should there be delays in toll hikes, toll multiplier adjustments and/or government compensation. In such circumstances, the rating agency expects PLUS to maintain a sufficient liquidity buffer particularly when the sukuk repayment commences in 2017.

The stable outlook is premised on MARC’s expectations that the concession assets of PLUS will achieve satisfactory traffic performance that is in line with the projections and the company’s credit metrics will remain commensurate with its standalone rating.

Major Rating Factors

Strengths

  • Portfolio of matured toll road concessions with stable traffic profiles;
  • Government support to the transaction, and;
  • Stature of shareholders.

Challenges/Risks

  • Highly leveraged transaction structure;
  • Threats from upcoming alternate tolled roads and rail networks, and;
  • Inherent regulatory risks.
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