Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd - 2010 Credit Commentary Report

MARC continues to monitor progress on expressway concessionaire Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd’s (Kesturi) refinancing of its outstanding sukuk. MARC's last rating action on Kesturi's RM780 million Sukuk Istisna was implemented on January 18, 2010 when the rating agency affirmed its A+ID rating on the sukuk and revised Kesturi's rating outlook to developing from stable.

Since MARC's last rating action, Kesturi has made notable progress in addressing its near-term exposure to refinancing risk. There is greater certainty that financial close for the refinancing of the sukuk will occur by end-October 2010, allowing MARC to conclude that refinancing risk for the sukuk is manageable. 

As a result of slower-than-expected traffic ramp-up and growth as well as delay in the commencement of tolling on the Duta-Ulu Kelang Expressway (DUKE), Kesturi's cash position as well as expected cash generation would not be sufficient to cover its upcoming sukuk redemption of RM50 million in October. Kesturi will be issuing new debt that is longer dated to align its annual debt amortisation requirements with its expected cash generation, taking into account its recently revised traffic projections.

Since opening, monthly average daily traffic (ADT) on the expressway has doubled from 45,514 in May 2009 to 92,630 in July 2010. ADT reduced slightly in August 2010 to 89,122. The variance between actual ADT as of August 2010 and annual projected ADT is 5.3%. Kesturi’s cumulative negative variance was higher at 9.38% for the period covering January to August 2010. Annual ADT is projected to reach 94,085 at the end of 2010 and to increase to 115,218 in 2012. MARC estimates that DUKE needs to achieve compound annual growth rate (CAGR) of 10.7% to achieve its ADT target in 2012. Nevertheless, the revised ADT projections, which take into account an extended ramp-up period, appear to be achievable in the next one to two years.

MARC expects the sukuk to be redeemed with proceeds from Kesturi's new debt issuance. Upon redemption of the sukuk, the rating agency will withdraw the assigned rating and outlook.

Major Rating Factors

Strengths

Challenges/Risks