Cerah Sama Sdn Bhd - 2015

MARC has affirmed its rating of AA-IS on Cerah Sama Sdn Bhd’s (Cerah Sama) RM420.0 million sukuk issued under the RM750.0 million Sukuk Musharakah Programme with a stable outlook. Cerah Sama is the investment holding company of Grand Saga Sdn Bhd (Grand Saga), the concessionaire of the 11.5-kilometre Cheras-Kajang Highway. Cerah Sama is also an investment vehicle for potential brownfield toll assets in Malaysia and overseas.

The affirmed rating incorporates Cerah Sama’s adequate finance service coverage, which is mainly supported by dividends from Grand Saga. The rating also considers the back-ended amortisation schedule of the programme which provides a buffer for potential revenue shortfalls in the early years of the sukuk tenure and a moderately leveraged capital structure. The rating is moderated by traffic volume risk due to the availability of alternative routes and the reliance on scheduled toll hikes to meet finance service obligations. The current rating does not take into consideration any drawdown of the remaining RM330.0 million under the issuer’s Sukuk Musharakah Programme.

Traffic growth of the Cheras-Kajang Highway has been affected by the MRT construction works since early 2014. The actual average daily traffic of the Batu 9 and Batu 11 toll plazas declined by 5.2% and 5.4% year-on-year (y-o-y) to 70,686 and 60,515 vehicles per day respectively for the nine-month period ended September 30, 2014 (9M2014). Consequently, Cerah Sama’s toll revenue for 9M2014 decreased by 5.2% y-o-y to RM34.9 million (9M2013: RM36.8 million). However, the company’s strong liquidity position as reflected by its short-term liquid assets (comprising cash and cash equivalents and money market instruments) of RM248.9 million as at September 30, 2014 provides an ample liquidity buffer against any short-term traffic underperformance. In addition, with substantial MRT ground works expected to be completed by 1Q2015, peak-hour traffic congestion would be relieved while an increase in electronic transaction lanes at both toll plazas by 1H2015 could potentially boost highway usage.

MARC notes that the base case cash flow projections have been revised to incorporate a weaker traffic performance in 2014 and a flat traffic volume for 2015. The revised base case projections reveal that Cerah Sama is able to comfortably meet its finance service payments as well as distribute dividends to its shareholders with average and minimum post-distribution finance service cover ratios (FSCR) of 4.59 times and 1.75 times respectively. MARC’s sensitivity analysis demonstrates that Cerah Sama’s cash flow is able to withstand a moderate traffic underperformance (annual traffic volume of 7% below projections) as well as a toll hike deferral (in 2016 and every 10 years thereafter) without government compensation. However, if the highway experiences a prolonged period of weaker-than-expected toll revenues, MARC expects Cerah Sama’s liquidity position to come under pressure given the post-distribution FSCR covenant of 1.75 times and maximum debt-to-equity of 4.5 times. MARC notes that under its sensitivity analysis, Cerah Sama may face risk of default in 2029 if the highway were to experience a negative traffic growth of more than 1.9% per annum from 2015 to 2030.

The stable outlook is premised on MARC’s expectations of a stable traffic profile for the Cheras-Kajang Highway and compensation from the government in the event of a delay in implementing the scheduled toll hikes in 2015. Nevertheless, any potential acquisitions and/or aggressive dividend policy that may weigh on the company’s liquidity position could put Cerah Sama’s rating and/or outlook under pressure.

Major Rating Factors

Strengths

• Matured highway with stable traffic profile;
• Undemanding repayment schedule; and
• Moderately leveraged capital structure.  

Challenges/Risks

• Regulatory risks, in particular deferment of toll hikes;
• Risk of lower traffic growth due to alignment of Sungai Buloh-Kajang MRT; and
• Potential acquisitions may shift credit profile.