Monday, Jul 30, 2001
MARC has assigned long-term ratings of AID (A flat, Islamic debt) and A (A flat) to Sistem Penyuraian Trafik KL Barat Sdn Bhd (SPRINT)’s 20-year RM510 million Al Bai Bithaman Ajil Islamic debt securities facility and its 16-year RM365 million Bank Guaranteed Serial Fixed Rate Bonds. SPRINT’s Revolving Underwritten Facility of up to RM125 million Convertible into a Floating Rate Term Loan has been assigned a short-term rating of MARC-2. The rating for SPRINT’s bank guaranteed bonds of ‘A’ is the same as the project’s stand-alone long-term debt rating notwithstanding unconditional and irrevocable guarantees provided by a consortium of banks as to the timely payment of interest and principal due on the bonds. MARC evaluated the credit enhancement provided by the bank guarantees to be of ‘A-‘ level based on the ‘weak-link’ approach. In such a scenario, the issue’s rating will revert to the project’s stand-alone debt rating and a bank guaranteed (bg) rating will not be assigned. This in line with MARC’s practice of assigning (bg) ratings only in circumstances where bank guarantees give a favourable effect to the rating.
The ratings reflect the traffic potential of the SPRINT highway as a critical piece of infrastructure in the west of Kuala Lumpur. The project is strategically positioned to capture existing traffic flows along Jalan Damansara and from congested roadways west of Kuala Lumpur as well as incremental traffic volume from planned and future development projects for the area. Average daily traffic levels are anticipated to be fairly strong, hence providing a sound foundation to SPRINT’s earnings profile and debt service coverage measures. The project’s other strengths include the track record of SPRINT’s sponsors as developer and operator of toll road concessions, and its reasonably covered construction risk under fixed-price, date-certain, turnkey contracts with a highly qualified contractor. On the negative side, the ratings also reflect uncertainties surrounding the ramp-up of traffic on two of the highway’s three links, namely the Kerinchi and the Penchala Links, traffic slowdowns stemming from lower economic activity, toll acceptance and pricing risks.
The SPRINT highway has been privatized as a 33-year concession on a Build, Operate and Transfer (BOT) basis under a concession agreement signed on October 23, 1997 between SPRINT and the Government of Malaysia. (SPRINT is wholly-owned by SPRINT Holdings, in which the majority shareholders are Gamuda Berhad and Lingkaran Trans Kota Holdings Bhd). The 26-kilometre toll road project entails the construction of new segments and numerous road improvements. The new segments include the construction of a new dual three-lane highway linking New Klang Valley Expressway (NKVE) to Mont Kiara and Kg.Sg.Penchala to Mont Kiara, as well as an elevated highway between the existing Jalan Bukit Kiara junction to Kg. Kerinchi interchange. Existing roads that will be widened, upgraded and improved under the project include Jalan Damansara-Jalan Semantan corridor and the Federal Highway Route II between Kg. Kerinchi and Old Klang Road.
Construction of the highway has been divided into three distinct packages: A (Kerinchi Link). B (Damansara Link) and C (Penchala Link). Construction of Packages A and B was completed ahead of schedule in June 2001, at a total cost of RM764.1 million including additional works amounting to RM36.3 million. The turnkey contract had provided for early completion incentives (50% of net toll revenue during the early completion period) for the turnkey contractor, the Gamuda-Mujur Minat joint venture. Package C has also been awarded to the Gamuda-Mujur Minat joint venture under a fixed price RM420.25 million contract and is currently in the land acquisition and planning stages. SPRINT expects to commence construction within the third quarter of 2001. The risk of delayed completion is viewed as low for this remaining package. Technically, highway construction is quite basic, the most complicated portion from an engineering standpoint being perhaps Penchala Link’s 700 metre-long tunnel. Cost overruns risk is mitigated to a significant extent by the fixed price date certain turnkey contract.
The importance of the highway to the overall road network west of Kuala Lumpur is supported by traffic consultant, Symonds Travers Morgan (Malaysia) Sdn Bhd’s traffic and revenue study. Symonds’ base case which reflects the effects of the earlier economic downturn estimates an average daily tollable volume of 72,572 vehicles for the Kerinchi Link and 74,249 vehicles for Damansara Link in their opening year. Traffic volume and revenue projections are not predicated on significant growth in GDP numbers and population, which are generally acknowledged as key factors stimulating traffic volume growth. Consequently, MARC believes that this should minimise the risk of lower than expected traffic levels. Traffic volume growth projections are generally consistent with historical traffic growth patterns in the highway corridor or that experienced by recently completed toll roads in the Klang Valley.
Cash interest servicing commences while the project is in the construction phase and principal repayments start in 2006. Final maturity of the debt with the longest tenure, i.e. the BaIDS, is in 2021. SPRINT’s base case debt service coverage (DSCR) projection shows a minimum of 1.74x in 2017 and an average of 3.66x. MARC is of the view that cash flows provide satisfactory coverage of debt service even under stressed scenarios.
The ratings reflect the traffic potential of the SPRINT highway as a critical piece of infrastructure in the west of Kuala Lumpur. The project is strategically positioned to capture existing traffic flows along Jalan Damansara and from congested roadways west of Kuala Lumpur as well as incremental traffic volume from planned and future development projects for the area. Average daily traffic levels are anticipated to be fairly strong, hence providing a sound foundation to SPRINT’s earnings profile and debt service coverage measures. The project’s other strengths include the track record of SPRINT’s sponsors as developer and operator of toll road concessions, and its reasonably covered construction risk under fixed-price, date-certain, turnkey contracts with a highly qualified contractor. On the negative side, the ratings also reflect uncertainties surrounding the ramp-up of traffic on two of the highway’s three links, namely the Kerinchi and the Penchala Links, traffic slowdowns stemming from lower economic activity, toll acceptance and pricing risks.
The SPRINT highway has been privatized as a 33-year concession on a Build, Operate and Transfer (BOT) basis under a concession agreement signed on October 23, 1997 between SPRINT and the Government of Malaysia. (SPRINT is wholly-owned by SPRINT Holdings, in which the majority shareholders are Gamuda Berhad and Lingkaran Trans Kota Holdings Bhd). The 26-kilometre toll road project entails the construction of new segments and numerous road improvements. The new segments include the construction of a new dual three-lane highway linking New Klang Valley Expressway (NKVE) to Mont Kiara and Kg.Sg.Penchala to Mont Kiara, as well as an elevated highway between the existing Jalan Bukit Kiara junction to Kg. Kerinchi interchange. Existing roads that will be widened, upgraded and improved under the project include Jalan Damansara-Jalan Semantan corridor and the Federal Highway Route II between Kg. Kerinchi and Old Klang Road.
Construction of the highway has been divided into three distinct packages: A (Kerinchi Link). B (Damansara Link) and C (Penchala Link). Construction of Packages A and B was completed ahead of schedule in June 2001, at a total cost of RM764.1 million including additional works amounting to RM36.3 million. The turnkey contract had provided for early completion incentives (50% of net toll revenue during the early completion period) for the turnkey contractor, the Gamuda-Mujur Minat joint venture. Package C has also been awarded to the Gamuda-Mujur Minat joint venture under a fixed price RM420.25 million contract and is currently in the land acquisition and planning stages. SPRINT expects to commence construction within the third quarter of 2001. The risk of delayed completion is viewed as low for this remaining package. Technically, highway construction is quite basic, the most complicated portion from an engineering standpoint being perhaps Penchala Link’s 700 metre-long tunnel. Cost overruns risk is mitigated to a significant extent by the fixed price date certain turnkey contract.
The importance of the highway to the overall road network west of Kuala Lumpur is supported by traffic consultant, Symonds Travers Morgan (Malaysia) Sdn Bhd’s traffic and revenue study. Symonds’ base case which reflects the effects of the earlier economic downturn estimates an average daily tollable volume of 72,572 vehicles for the Kerinchi Link and 74,249 vehicles for Damansara Link in their opening year. Traffic volume and revenue projections are not predicated on significant growth in GDP numbers and population, which are generally acknowledged as key factors stimulating traffic volume growth. Consequently, MARC believes that this should minimise the risk of lower than expected traffic levels. Traffic volume growth projections are generally consistent with historical traffic growth patterns in the highway corridor or that experienced by recently completed toll roads in the Klang Valley.
Cash interest servicing commences while the project is in the construction phase and principal repayments start in 2006. Final maturity of the debt with the longest tenure, i.e. the BaIDS, is in 2021. SPRINT’s base case debt service coverage (DSCR) projection shows a minimum of 1.74x in 2017 and an average of 3.66x. MARC is of the view that cash flows provide satisfactory coverage of debt service even under stressed scenarios.