Projek Lebuhraya Usahasama Bhd - 2013

MARC has affirmed its AAAIS rating on Projek Lebuhraya Usahasama Berhad's (PLUS Berhad) RM23.35 billion Sukuk Musharakah Programme (sukuk) with a stable outlook. PLUS Berhad holds a portfolio of tolled expressways, of which the North-South Expressway (NSE) is its largest revenue source.

The affirmed rating continues to incorporate a two-notch rating uplift from PLUS Berhad’s standalone rating of AA based on MARC’s assumption of support from the Malaysian government with respect to the programme. Among key factors that support this assumption are the government’s golden share in the concession company, the interdependence between default events for the rated sukuk and RM11.0 billion government-guaranteed sukuk (GG Sukuk) that matures after the rated programme and the critical role of the NSE in the country’s transportation system.

PLUS Berhad’s standalone rating is premised on the strong traffic performance of its toll concession portfolio and the company’s sizeable liquidity position. Moderating the rating is the group’s high gearing level, potential impact on traffic volume from new and enhanced transportation modes and inherent traffic vulnerability to any impact on the economy.

PLUS Berhad, which is indirectly owned by UEM Group Berhad (51.0%) and the Employees Provident Fund Board (EPF) (49.0%), was incorporated to facilitate the consolidation of all toll concessions held under PLUS Expressways Berhad and Penang Bridge Sdn Bhd under a single entity. The portfolio comprises five toll concessions, namely the PLUS expressways (including the NSE), North-South Expressway Central Link (NSECL), Malaysia-Singapore Second Link (MSSL), Butterworth-Kulim Expressway (BKE) and the Penang Bridge. MARC notes that the NSE is projected to generate over 80% of PLUS Berhad’s revenue over the tenure of the programme. For the nine-month period ended September 30, 2013 (9M2013), traffic volume of the NSE stood at 12.08 billion passenger car unit-kilometres (PCU-km), registering an annualised growth rate of 2.3%, while the remaining toll concessions recorded an annualised growth rate of between 1.0% and 8.0%. During 9M2013, MSSL and NSECL recorded strong growth in traffic volume, undergirded by the township developments along the Iskandar corridor and Putrajaya/Putra Heights respectively.

In line with the expected overall traffic growth of tolled roads, PLUS Berhad registered revenue of RM3,046.0 million in 2012 against a projected RM2,997.0 million. The company registered losses before taxation of RM4.5 million which were notably lower than projected losses before taxation of RM656.0 million on the back of higher facilities income and other income of RM222.0 million and classification of the amount of coupon payable under the redeemable convertible unsecured loan stocks (RCULS) as part of equity. Accumulated losses in 9M2013 increased to RM1.1 billion (2012: RM342.9 million) subsequent to the RCULS coupon payout of RM750.0 million in July 2013. The company also recorded higher actual cash flow from operations and free cash flow due to lower actual operating expenditures in 2012. MARC’s latest sensitivity analyses have illustrated that PLUS Berhad’s cash flow generation is more susceptible to decline in traffic volume as compared to toll rate hikes.

The stable outlook reflects MARC’s expectations that PLUS Berhad should continue to meet its obligations comfortably.

Major Rating Factors

Strengths

Challenges/Risks

• Highly leveraged transaction structure;
• Threats from upcoming alternate tolled roads and rail networks, and
• Inherent regulatory risks.