Sistem Penyuraian Trafik KL Barat Sdn Bhd - 2008

MARC has affirmed the AA-(bg) and AA-ID ratings of highway concessionaire Sistem Penyuraian Trafik KL Barat Sdn Bhd’s (SPRINT) RM365.0 million Bank Guaranteed Serial Fixed Rate bonds (BG Bonds) and RM510.0 million Al-Bai Bithaman Ajil Islamic Debt Securities (BaIDS) respectively (collectively known as the Facilities). The ratings carry a stable outlook. The affirmed rating on the BG Bonds reflects the strength of the bank guarantee based on the lowest financial institution rating of a consortium of three bank guarantors. MARC currently maintains a long-term financial institution rating of AA- on AmInvestment Bank Berhad and public information financial institution ratings of AAA and AA- on Public Bank Berhad and RHB Bank Berhad respectively.

The rating on the BaIDS is reflective of SPRINT highway’s favourable long-term fundamentals, the strong support given to SPRINT by its shareholders through SPRINT Holdings and protective debt service reserve covenants. The shareholders of SPRINT Holdings have invested substantial sums in SPRINT amounting to RM510.0 million to date in the form of share capital and loan stocks. These continuing capital contributions allow SPRINT to maintain strong debt servicing capacity despite toll revenues that are not yet over and above finance costs as well as heavy scheduled maintenance expenditure. SPRINT is expected to generate sufficient cash flow to cover debt obligations by FY2012 on a stand-alone basis, provided actual traffic volume does not deviate by more than 15% of projection. Moderating the rating is the inherent regulatory risk in respect of schedule toll rate hikes and SPRINT’s recurring pre-tax losses which are expected to continue through to 2013. SPRINT is projected to register pre-tax profit in FY2014.

SPRINT is the concessionaire for the 25.5 km Western Traffic Dispersal Scheme Expressway or Lebuh Raya SPRINT which was designed to ease traffic congestion in the western part of Kuala Lumpur. Two of the highways three links, Kerinchi Link and Damansara Link, commenced tolling operation in September 2001 while Penchala Link commenced tolling in March 2004. SPRINT is wholly-owned by Syarikat Penyuraian Trafik KL Barat Holdings Sdn Bhd (SPRINT Holdings) whose shareholders are leading construction group Gamuda Bhd (GAMUDA) (30%) and its highway concessionaire associated company Lingkaran Trans Kota Holdings Berhad (LITRAK) (50%), and Selangor state government-linked Kumpulan Perangsang Selangor Bhd (KPSB) (20%). (MARC maintains a public information senior unsecured obligation rating of AA-/MARC-1 on GAMUDA.)

SPRINT highway’s traffic volume grew 6.6% in 2007, underpinned by above expectation average daily traffic (ADT) at Penchala Link and Kerinchi Link which grew 15.8% and 10.2% respectively. Actual traffic growth, which exhibited modest variance from 2005 traffic projections, was also affected by a 2.4% decline in ADT at Damansara Link. Continued development especially in the areas served by Penchala Link and higher traffic flow on Kerinchi Link are expected to be key drivers to SPRINT’s traffic growth.

Financial performance has been marked by continuing pre-tax losses. Despite 12.4% higher revenue in financial year ended March 31, 2008 (FY2008) to RM94.4 million, SPRINT registered a pre-tax loss of RM43.8 million (FY2007: loss of RM40.3 million). Finance charges remained elevated at RM103.4 million (FY2007: RM92.8 million). SPRINT’s cash flow deficit almost doubled to RM29.4 million from FY2007’s deficit of RM14.7 million. Cash flow coverage measures are not expected to improve from current level in light of rising debt servicing requirements. During the next five years, SPRINT’s debt servicing requirement is expected to increase from RM67.0 million in FY2008 to RM146.0 million in FY2013. SPRINT expects to raise RM100.0 million in FY2009 from an issuance of redeemable unsecured loan stocks (RULS) to SPRINT Holdings which will, in turn, be wholly funded by subscription to SPRINT Holdings’ redeemable preference shares by LITRAK, GAMUDA and KPSB. No further external capital contribution is expected after the issuance of the RULS based on the company’s projected cash flow generation.

Securing the scheduled toll rate hikes on a timely basis continues to be a primary challenge for SPRINT as a toll road concessionaire, and given the uncertainty surrounding the outcome of the Works Ministry’s review of highway concessions. SPRINT received compensation amounting to RM16.65 million in February 2008 in place of its scheduled toll rate hike for its Damansara Link and Kerinchi Link in January 2008, which represents 50% of the expected toll revenue shortfall in 2008. The balance of the compensation is expected to be paid in 2009. The government announced in February 2009 that the toll hike for SPRINT highway has been postponed indefinitely due to rising public discontent, particularly in the current recessionary environment.

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