Sistem Penyuraian Trafik KL Barat Sdn Bhd - 2010

MARC has affirmed its AA-(bg) rating on Sistem Penyuraian Trafik KL Barat Sdn Bhd’s (SPRINT) RM365 million Bank Guaranteed Serial Fixed Rate bonds (BG Bonds) with a stable outlook. The rating and outlook on the BG Bonds reflects that of the lowest-rated financial institution participating in the consortium of three bank guarantors. MARC currently maintains a long-term financial institution rating of AA-/Positive on AmInvestment Bank Berhad and public information financial institution ratings of AAA/Stable on Public Bank Berhad and AA-/Stable on RHB Bank Berhad.

Concurrently, MARC has affirmed its AA-ID rating on SPRINT’s RM510 million Al Bai Bithaman Ajil Islamic Debt Securities (BaIDS) with a stable outlook. The affirmed rating on the BaIDS currently balances the past record of financial support from SPRINT's shareholders and overall growth in traffic volumes on the SPRINT highway against the highway operator's poor profitability. SPRINT's financial profile has been supported by shareholder funding injections totalling RM560 million between 1999 and 2010 in the form of loan stock subscription. SPRINT has relied heavily on the funding injections to ensure covenant compliance under the BaIDS. At the same time, MARC recognises that the formal commitment of support by SPRINT's shareholders under the BaIDS will end with their final subscription to RM50 million of loan stock in 2011, of which RM25 million was subscribed in January 2011. Going forward, SPRINT's credit profile and the stability of the rating will become increasingly dependent on the achievement of its financial forecasts and projected toll volumes.

SPRINT is the highway concessionaire of the 25.5 km SPRINT highway designed to ease traffic congestion in the western part of Kuala Lumpur. The ultimate majority shareholder of SPRINT is Gamuda Bhd (rated AA-/Stable by MARC based on public information) with an effective equity interest of 53% by virtue of a 30% direct shareholding in Sistem Penyuraian Trafik KL Barat Holdings Sdn Bhd (SPRINT Holdings) and 23% indirect shareholding in SPRINT Holdings through 46%-owned associate company Lingkaran Trans Kota Holdings Berhad (LITRAK). LITRAK holds a 50% equity interest in SPRINT Holdings and Kumpulan Perangsang Selangor Bhd holds the remaining 20%.

The SPRINT highway recorded higher year-on-year traffic growth of 8.5% during calendar year 2009 (2008: 4.6%). Although actual traffic on the two of its three links, the Kerinchi and Penchala links, were above forecast by 3.1% and 8.8% respectively during the calendar year 2009, actual tolled traffic was 4.6% lower  than  projected due to the 19.6%  below forecast of tolled traffic on the Damansara Link. In the first eight months of 2010 (8M2010), SPRINT recorded overall traffic of 44,840,643, 10.2% higher compared to the previous corresponding period. Average daily traffic (ADT) on the Damansara Link continues to perform below the forecast ADT and traffic growth has levelled off but it is expected that higher traffic growth at the Kerinchi and Penchala Links will compensate for the lower traffic at Damansara Link. The traffic consultant’s traffic forecast assumes fairly strong traffic volume growth of between 9% and 15% until 2014 on both Kerinchi and Penchala Link before slowing from 2015 onwards. Kerinchi Link’s ADT is expected to reach 113,428 vehicles in 2015 from 72,004 vehicles in 8M2010 while ADT at Penchala Link is expected to reach 80,377 vehicles by 2015 (8M2010 ADT: 56,420). Traffic growth on the Damansara Link, meanwhile, will be foreseeably constrained by the congestion at the link during peak periods. The government has deferred toll rate revisions for Damansara Link and Kerinchi Link scheduled in 2008 indefinitely. The January 1, 2010 scheduled toll rate hike for Penchala Link has also been deferred. The impact of the delay in toll rate hikes on SPRINT’s revenue has been mitigated by compensation from the government for the loss of revenue in accordance to the concession agreement.

For the financial year ended March 31, 2010 (FY2010), SPRINT recorded a 5.1% increase in revenue of RM121.4 million (FY2009: RM115.5 million) on account of higher traffic volume. SPRINT recorded a pre-tax loss of RM44.6 million in FY2010 (FY2009: pre-tax loss of RM33.6 million). For the five months ended August 31, 2010, SPRINT recorded unaudited revenue of RM66.5 million and pre-tax losses of RM2.1 million. Despite year-on-year increases in its operating profit before financing costs, SPRINT’s substantial annual financing costs on its high debt burden continue to be a drag on its profitability and cash flow. The pre-tax operating losses are expected to persist through FY2014. 

SPRINT has yet to generate adequate cash flow to support its financing charges and has been relying on financial support from its shareholders to remain in compliance with its debt service coverage and financial leverage covenants under the rated facilities. MARC notes that in 2010, SPRINT procured an additional government support loan of RM20.0 million, of which RM15.9 million was drawn in August 2010, to finance land acquisition for construction of the Mont Kiara ramp. The debt servicing obligations associated with the new government loan will not have an immediate impact on SPRINT’s cash flow to debt service coverage measures; interest servicing obligations will commence only in August 2012 while the principal is repayable over 14 years, with the bulk of the repayments occurring after the repayment of the rated facilities.

SPRINT maintained a favourable facility debt service coverage ratio (DSCR) in FY2010 of 2.05 times (x) against its required minimum DSCR of 1.50x. Estimated balances in SPRINT’s debt reserve account, anticipated shareholders’ funding injection and internally generated operating cash flows are expected to adequately cover the highway operator’s 2011 debt obligations. MARC’s analysis takes into account SPRINT’s other facilities, including a fixed rate term loan maturing in 2017 and government support loans. MARC, however, cautions that SPRINT’s financial profile could come under stress with heavy debt repayments in 2012 of around RM130 million should toll revenues fall short of projections. Erosion in SPRINT’s covenant compliance headroom will result in downward rating pressure, absent any mitigating developments.

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