Maju Expressway Sdn Bhd - 2008

MARC has affirmed the A+ID  and MARC-2ID / A+ID ratings on toll road concessionaire, Maju Expressway Sdn Bhd’s (MESB or formerly known as Konsortium Lapangan Terjaya Sdn Bhd) RM380.0 million Al Bai’ Bithaman Ajil Primary Serial Medium Term Notes (BBA MTN) and up to RM80.0 million Murabahah Commercial Papers/Medium Term Notes (MCP/MTN) respectively (Islamic Securities). The ratings reflect the elimination of construction risk upon the timely completion of the Maju Expressway (MEX) in December 2007 followed by the commencement of its toll operations on January 17, 2008. However, traffic is 45.0% below the projections as at November 30, 2008 since the opening of the highway. Currently, traffic and revenue risks are offset by its cash reserves of RM115.9 million in designated accounts and its back-loaded debt service profile under which principal payments do not commence until 2010. MARC maintains a stable outlook on the ratings.

MESB is the highway concessionaire for the 26 km MEX which links Jalan Tun Razak at Kampung Pandan Roundabout with the Federal Government Administrative Centre at Putrajaya. The concession has been granted to MESB for a period of 33 years. MESB is responsible for the design, construction, operation, maintenance and management of MEX, in return for which it is entitled to collect tolls until 2037.

Maju Holdings Sdn Bhd, the promoter and turnkey contractor for MEX, completed the construction works in accordance with the construction schedule without any cost overrun. The project has been funded with an equity contribution of RM60.0 million, shareholders’ advances of RM87.4 million, a government grant of RM976.7 million and borrowings of RM370.0 million. Unutilised portion is retained in the cash reserve account.

Protective measures under the rated issuance include maintenance of a disbursed facilities-to-shareholders’ fund ratio of 70:30 for a period of nine years after the issue date of the Islamic Securities. The protection for noteholders is further augmented by its reserve funds which stood at RM115.9 million as at end November 2008.

Since MEX’s opening in January, 2008, the average daily traffic has grown from 43,583 to 56,076 vehicles in November 2008, although lower than the originally projected 88,667 vehicles a day. The average daily traffic volume during the first eleven months of operation this year was approximately 45.0% lower than projected. Growth in average daily traffic is reliant on population and job growth in Putrajaya and Cyberjaya which continues to be weaker than original projections. Furthermore, deferment of toll rate increases for KL-Seremban Highway, scheduled early-2008, has reduced the diversion of traffic flow to MEX whose present toll rate is relatively higher.

The shortfall in traffic volume vis-à-vis original projections has resulted in reliance on MESB’s cash reserves to meet debt service shortfalls. The reserve funds are adequate to service its obligations under the Islamic Securities until 2011 on the basis that toll revenues, which are now sufficient to meet operational costs, can continue to sustain the operational costs. MESB recorded a CFO Interest Coverage of only 0.81 times (x) for the first eleven months of FY2008.

The stable outlook for the notes currently reflects the prefunding of profit payments under the Islamic Securities and anticipated steady growth in traffic volumes over the next 18 months. The outlook may be revised if the general trend in traffic flow and toll revenues remains materially lower than the original projections.

Major Rating Factors

Strengths

•  Elimination of construction risk;
•  Substantial cash reserve; and
•  Conservative funding structure.

Challenges/Risks