Sistem Penyuraian Trafik KL Barat Sdn Bhd - 2013

MARC has affirmed its A+ID and AA-(bg) ratings on Sistem Penyuraian Trafik KL Barat Sdn Bhd’s (SPRINT) RM510 million Al Bai Bithaman Ajil Islamic Debt Securities (BaIDS) and RM365 million Bank Guaranteed Serial Fixed Rate Bonds (BG bonds) respectively. The outlook on the ratings is stable. SPRINT is the toll concessionaire and operator of the 25.5-kilometre interlinked tolled roads comprising Damansara Link, Kerinchi Link and Penchala Link in the Klang Valley.

The rating of the BG bonds reflects the lowest financial institution rating of AA-/Stable from MARC of SPRINT’s three guarantor banks, namely Public Bank Berhad, AmInvestment Bank Berhad and RHB Bank Berhad, in line with MARC’s weakest link approach. MARC maintains non-solicited ratings on the three banks on the basis of information in the public domain. Any changes to the rating and outlook of the BG bonds would be predominantly driven by changes in the credit strength of the guarantor banks.

The rating of the BaIDS is premised on SPRINT's standalone credit profile which is underpinned by the company’s sufficient operational cash flow on the back of satisfactory traffic performance against projections. Moderating the rating is the susceptibility of SPRINT’s liquidity position to cash flow mismatch arising from delays in toll compensation from the government following toll hike deferments.

The toll hike deferments on the Damansara Link and Kerinchi Link, the concessions of which will expire in 2034, and the Penchala Link, the concession of which will expire in 2031, continue to support traffic growth. The overall traffic volume in the first ten months of 2013 (10M2013) improved to 65,403,749 vehicles (10M2012: 62,092,352 vehicles) against a projection of 65,386,448 vehicles. Of the three links, Penchala Link exhibited the strongest average daily traffic growth of 10.8% as it benefited from some shift in traffic from the Damansara Link due to ongoing Klang Valley Mass Rapid Transit (KVMRT) Sungai Buloh–Kajang Line construction works. However, MARC highlights that Penchala Link continues to underperform against traffic projections by 4.7% in 10M2013 (2012: -5.1%) which may exert negative pressure on SPRINT’s cash flow generation.

MARC observes that government compensation as a proportion of SPRINT’s total revenue in the financial year ended March 31, 2013 (FY2013) has increased to RM60.5 million, or 35.0% (FY2012: RM54.9 million, or 33.6%). While the government continues to honour the toll compensations, MARC views the timeliness of compensation as critical to SPRINT’s liquidity position to address the toll concessionaire’s financial obligations.

Nevertheless, liquidity risk in the near term is somewhat mitigated by SPRINT’s cash and bank balances (including funds in the debt reserve account) of RM116.6 million and undertaking from the shareholders, Lingkaran Trans Kota Holdings Bhd, Gamuda Bhd and Kumpulan Perangsang Selangor Bhd, to subscribe to loan stocks of up to RM25 million.

For FY2013, SPRINT’s revenue and operating profit grew to RM173.1 million and RM109.5 million (FY2012: RM163.7 million and RM100.4 million) respectively. However, profitability continued to be dragged by the high financing cost of RM125.6 million in FY2013 (FY2012: RM123.4 million), particularly on government support loans which are accrued and deferrable, leading to pre-tax losses of RM12.3 million (FY2012: negative RM18.9 million). The company’s accumulated losses widened further to RM426.3 million in FY2013 (FY2012: negative RM412.9 million). SPRINT’s cash flow from operation (CFO) remained flat at RM138.0 million (FY2012: RM136.4 million), but is sufficient to cover its financial obligations on the BG bonds and BaIDS of RM87.1 million and RM32.1 million respectively in FY2013. SPRINT’s debt service coverage ratio (DSCR) was lower at 1.86 times (FY2012: 1.96 times) due to weaker cash balance. Notwithstanding this, the DSCR is still within the covenanted level of 1.50 times.

The stable outlook on the BaIDS reflects MARC’s expectations that SPRINT’s financial metrics will be consistent with its current rating, supported by sufficient cash flow generation in the context of moderate delays in government compensations. Downward rating pressure may emerge if traffic performance deviates significantly from projections and/or the liquidity position of SPRINT is weakened further due to prolonged toll hike deferments by the government.

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