Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd - 2011

MARC has affirmed its ratings on Konsortium Lebuhraya Utara – Timur (KL) Sdn Bhd’s (Kesturi) RM820 million Sukuk Musyarakah Medium Term Notes Programme (Senior Sukuk) and RM50 million Redeemable Junior Bonds (Junior Bonds) at AA-IS and A- respectively. The outlook for both ratings is maintained at stable.

The ratings reflect adequate growth in vehicle traffic on the strategically located Duta – Ulu Kelang (DUKE) highway which links the east and west parts of the Klang Valley, strong coverage of the company’s debt obligations and the favourable terms of the issue structure which alleviate liquidity risks in the early years. The ratings are moderated by the divergence between actual and forecast revenue and cash flow and increasing congestion along the highway’s Mont Kiara exit ramp which may limit traffic growth. The stable outlook reflects MARC’s expectations that the project’s credit metrics will remain adequate for the current ratings over the next 12 to 18 months.

Traffic volume on the DUKE highway has grown significantly since the opening of the final section of the highway, Duta Link, on April 30, 2009, almost three months after the partially completed highway was first opened to traffic. Average daily traffic (ADT) for the DUKE highway increased to 87,983 vehicles/day in 2010 (May to December 2009: 64,463 vehicles/day). The highway continues to benefit from its sizable catchment areas in the densely populated suburbs of Ampang, Ulu Kelang, Petaling Jaya and Mont Kiara. Despite the marked improvement in traffic volume in 2010, ADT is 6.5% below the traffic volume forecast of 94,085 vehicles/day due to poorer-than-expected performance during non-peak periods with the availability of non-tolled alternatives. ADT on Saturdays and Sundays are 10% and 29% lower respectively compared to ADT during the weekdays.

As a result of the lower-than-expected traffic volume in the financial year ended December 31, 2010 (FY2010), Kesturi reported revenue of RM63.0 million (FY2009: RM34.4 million), 8.3% lower than projected revenue of RM70.4 million. The highway concessionaire is still recording an accounting loss but is generating positive cash flow. Correspondingly, free cash flow of RM49.0 million was 17.4% lower than projected. Despite the weaker cash flow, Kesturi has maintained a finance service coverage ratio (FSCR) of 2.72 times in FY2010, above its covenant level of 1.75 times. For the six-month period ended June 30, 2011, Kesturi reported revenue of RM35.1 million with free cash flow of RM30.8 million against projected revenue and cash flow of RM77.2 million and RM68.5 million respectively for the full year.

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