CREDIT ANALYSIS REPORT

Sistem Penyuraian Trafik KL Barat Sdn Bhd - 2002

Report ID 3361 Popularity 2252 views 39 downloads 
Report Date Oct 2002 Product  
Company / Issuer Sistem Penyuraian Trafik KL Barat Sdn Bhd Sector Infrastructure & Utilities - Toll Road
Price (RM)
Normal: RM500.00        
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Rationale

The rating for Sistem Penyuraian Trafik KL Barat Sdn Bhd’s (SPRINT) Al Bai Bithaman Ajil Facility (ABBA) has been downgraded to A –ID. The issuer’s stand alone debt rating is, in the meantime, equivalent to the lowest rating of the banks in the consortium of guarantors (weak-link approach). As the bank guaranteed (bg) rating does not enhance or give a favourable effect to the issue’s stand alone rating, MARC has not applied the bg rating to the Serial Fixed Rate Bond facility.

The downgrade in the rating of the ABBA reflects weak traffic volumes at both the Kerinchi and Damansara Links, which were significantly below the earlier traffic projections; and, consequent reduction in the company’s debt servicing capacity. Nevertheless, these risks are somewhat mitigated by SPRINT’s sponsors financing commitment of up to RM460 million to the project; their experience and track record in managing similar infrastructure projects; and reasonably covered construction risk under the fixed price contract.

Under an agreement dated 23 October 1997 between SPRINT and the government, SPRINT was awarded a 33-year concession to undertake the Western Kuala Lumpur Traffic Dispersal Scheme on a Build, Operate and Transfer basis. Subsequently, four supplemental agreements were signed between the two parties, with the most recent being executed in December 2001. Under the 2001 Fourth Supplemental Agreement, the government and SPRINT agreed to the reductions in the scheduled toll rates. In consideration of the toll reduction, SPRINT received RM70 million in cash compensation from the government and an extension of the concession period for both the Damansara and Kerinchi links from the original 33 years to 36 years. The concession period for the Penchala link, meanwhile remains unchanged at 33 years.

The construction of the highway was divided into three separate packages: A (Kerinchi Link), B (Damansara Link) and C (Penchala Link). The construction of Packages A and B was completed six months ahead of schedule in June 2001, at a total cost of RM764.1 million (including additional works amounting to RM36.4 million). Tolling operations for both Packages A and B commenced in September  2001.  

The construction  work  for Package  C, which was initially deferred, started in August, 2001 and is expected to be completed by August, 2004. Package C (linking Kg. Sg. Penchala to Mont Kiara) was awarded to the Gamuda-Mujur Minat joint venture; the same turnkey contractor for the previous two packages, for a turnkey contract value of RM420.25 million. The risk of delayed completion is viewed as low for this remaining package. The most challenging part of this link from an engineering standpoint is the construction of a 700 metre-long tunnel that has been subcontracted to an Italian construction company, Cooperativa Muratori e Cementisti. The risk of cost overrun is mitigated to a significant extent by the fixed price nature of the turnkey contract.

Following the commencement of tolling operations in September 2001, both the Kerinchi and Damansara links recorded significantly lower average daily tollable volumes despite toll reductions, compared to the traffic consultant’s forecasted traffic volume. For the period between September 2001 and May 2002, the average daily traffic volume for the Damansara and Kerinchi link were 22% and 63% lower than the consultant’s July 2000 traffic forecast respectively. The weaker traffic numbers prompted SPRINT to come up with its own traffic projections, which are conservatively lower than the consultant’s projections for all of the highway’s toll plazas. The projected average daily traffic volume for the Kerinchi link, in particular, has been significantly reduced, by 53% (for the period 2002 to 2010) versus earlier projections.

Based on SPRINT’s internal traffic volume forecast, the minimum and average debt service coverage ratio under the revised base case financial projection were 1.29x and 2.58x respectively, lower than 1.74x and 3.66x under the initial base case projections. MARC noted that the company’s debt service capacity is sensitive to changes in the traffic growth rates, under various sensitivity analyses undertaken by MARC. Debt leverage has been capped at 2.33x (excluding the government support loan of RM390 million, novated to Bank Pembangunan dan Infrastruktur Malaysia Bhd) under the terms of the issue structure. Shareholders’ financing commitment to the project is up to RM460 million, in the form of RM50 million ordinary shares and the balance in loan stocks. 

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