Maju Expressway Sdn Bhd - 2010

MARC has assigned AA-ID rating on toll road concessionaire Maju Expressway Sdn Bhd’s (MESB) proposed RM550.0 million Islamic Medium Term Notes (IMTN) issuance programme under the Shariah principle of Musyarakah. The rating outlook is stable.

The assigned rating incorporates the strong debt servicing coverage under the IMTN programme attributable to the favourable repayment structure, and satisfactory tolling operation. Part of the proceeds from the IMTN will be utilised to redeem in full MESB’s existing outstanding obligations under the RM380.0 million Al Bai’ Bithaman Ajil Primary Serial Medium Term Notes and RM70.0 million Murabahah Commercial Papers/Medium Term Notes programmes, the ratings of which MARC has affirmed at A+ID and MARC-2ID / A+ID respectively, pending completion of the refinancing exercise and withdrawal of the ratings. The IMTN extends MESB’s debt maturity profile, allowing traffic to ramp up before the IMTN starts to amortise in 2015. The stable rating outlook reflects satisfactory traffic performance since the opening of Maju Expressway (MEX), adequate projected traffic growth based on the latest traffic study and robust debt service coverages.

MESB holds the concession for the 26-kilometre MEX. The highway begins from Jalan Tun Razak and ends at the Putrajaya Link Interchange, passing through several densely populated township areas via five interchanges in the southern corridor of the Klang Valley. Besides linking the city centre to the federal administrative centre of Putrajaya, MEX also provides an alternative link to the Kuala Lumpur International Airport (KLIA) and the Low Cost Carrier Terminal (LCCT).

In the first year of tolling operations (2008), MEX recorded an average daily traffic (ADT) of 51,073 vehicles. In 2009, ADT grew by 27.8% to 65,282, mainly reflecting the 36.0% ADT growth at Putrajaya toll plaza and 30.1% ADT growth recorded at the Salak South toll plaza. Improved highway signage and continuous promotion which have raised public awareness of the highway have contributed to the higher traffic volume. Traffic continued to improve in 2010 with an ADT of 79,195 registered in April 2010.

It is expected that future traffic growth will be supported by developments in Putrajaya and Cyberjaya and gradual increase of passenger  traffic  at  KLIA  and LCCT.  Based on the latest traffic consultant’s report, KLIA and LCCT passenger trips are expected to grow steadily at 1.85 million new passenger trips per year. This may contribute to steady traffic growth on the highway. In the medium term, population and employment growth in Putrajaya and Cyberjaya are expected to drive traffic growth at the MEX. New commercial developments in Cyberjaya and Putrajaya are the main factors behind the expected employment growth. Major housing developments taking place in Putrajaya, Cyberjaya and nearby Puchong would support population growth and in turn enlarge MEX’s catchment area. MESB’s substantial cash reserve of RM122 million as at end-December 2009 provides an additional buffer to MESB’s cash flow protection.

In financial year ended December 31, 2009 (Unaudited) (FY2009), MESB’s revenue increased by 42.2% to RM44.5 million following higher traffic volume on the highway. MESB generated a profit of RM1.0 million in FY2009 compared to the prior year’s pre-tax loss of RM9.8 million. Cash flow from operations (CFO) improved significantly in FY2009 and was sufficient to cover capital expenditure and debt servicing for the year. MESB’s toll operations are expected to demonstrate earnings and cash flow improvement as traffic volume increases.

MESB’s annual debt servicing requirements are expected to increase from RM29.8 million (FY2009) to about RM37.7 million with the proposed IMTN programme. Principal repayment on the IMTNs commences only in 2015, providing adequate downside protection against slower-than-expected traffic growth. The additional debt servicing requirements should be sufficiently supported by traffic growth over time. Any risk of shortfall in the medium term will be covered by the cash reserve. The finance service cover ratio (FSCR) is projected to be at a minimum of 4.13x (in 2015) and at an average of 9.67x. MESB’s cash flow projection demonstrates moderate reliance on traffic growth to maintain compliance with minimum covenanted FSCR of 1.75x.

Upside rating potential is currently limited by the higher risk of lower-than-projected traffic volumes which is inherent in a non-matured highway. The stable outlook reflects MARC’s expectation that MESB will achieve financial performance commensurate with its rating for the foreseeable future.

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