CREDIT ANALYSIS REPORT

PROJEK LINTASAN SUNGAI BESI – ULU KLANG SDN BHD - 2018

Report ID 5855 Popularity 1636 views 123 downloads 
Report Date Dec 2018 Product  
Company / Issuer Projek Lintasan Sungai Besi-Ulu Klang Sdn Bhd Sector Infrastructure & Utilities - Toll Road
Price (RM)
Normal: RM500.00        
  Add to Cart
Rationale

MARC has affirmed its A+IS(s) rating on single-purpose company Projek Lintasan Sungai Besi-Ulu Klang Sdn Bhd’s (PLSUKE) Sukuk Wakalah Programme (Sukuk Wakalah) of up to RM2.0 billion with a negative outlook. Concurrently, the rating agency has affirmed its AAAIS(fg) rating on PLSUKE’s Danajamin-Guaranteed Facilities (Danajamin-Guaranteed Sukuk) of up to RM500.0 million with a stable outlook.

PLSUKE is a 100%-owned subsidiary of Projek Lintasan Kota Holdings Sdn Bhd (PROLINTAS) and was established to construct, finance and operate the 24.6-km Sungai Besi-Ulu Kelang Elevated Expressway under a concession. The concession tenure is 55 years from December 25, 2014 with a conditional extension of another 10 years.

The affirmed rating on the Sukuk Wakalah reflects the credit substitution of guarantor PROLINTAS which has provided an unconditional and irrevocable corporate guarantee to meet all principal and profit payments and fund any shortfall in the finance service reserve account (FSRA) and/or finance payment account (FPA) under the programme. The guarantee also covers project cost overruns during the construction period including meeting any shortfall in the initial prefunding of the FSRA and FPA on the scheduled project completion date.

PROLINTAS is an investment holding company wholly owned by Permodalan Nasional Berhad (PNB), a government-owned investment fund. Its long-term rating of A+ benefits from a one-notch uplift on the high likelihood of parental support from PNB. PROLINTAS’ standalone rating considers its strong track record as a highway developer, operator and concessionaire of four completed toll roads and two under construction. The rating is moderated by its highly-leveraged capital structure and high financing cost which are expected to weigh on PROLINTAS’ profitability and cash flow protection metrics. Its negative outlook reflects the continued regulatory uncertainties on the direction of the toll industry that could impact PROLINTAS given its position as a major toll concessionaire.

The rating and outlook on PLSUKE’s Danajamin-Guaranteed Sukuk reflect MARC’s insurer financial strength rating of AAA/Stable on Danajamin Nasional Berhad (Danajamin).

As at September 25, 2018, the actual construction progress stood at 43.2% against the planned progress of 40.3%. The 48-month construction schedule is expected to be completed by end-August 2020. With regard to site acquisition, PLSUKE has acquired 98.4% of the project site with the remaining 5.04ha expected by end-April 2019. Any protracted delay arising from land acquisition issues is deemed low and an adequate time frame has been set aside for this process. MARC views the project’s construction schedule as reasonable to manage construction and completion risks. The cost overrun risk is mitigated by the fixed price contract with turnkey developer Turnpike Synergy Sdn Bhd, which is wholly owned by PROLINTAS and was involved in two of its parent’s completed highway projects. Construction risks are further addressed by PROLINTAS’ completion guarantee.

MARC notes that the Senior Facilities comprising the Sukuk Wakalah, Danajamin-Guaranteed Sukuk and Syndicated Islamic term facilities are non-amortising and are expected to be refinanced through new facilities upon their maturity in 2027, seven years after completion of construction. This is due to the short time frame to sufficiently generate project cash flows to meet financial obligations with PLSUKE heavily reliant on pre-funded cash balances to service the profit on the Senior Facilities during the tenure of the facilities. As a result, PLSUKE could face refinancing risk which is effectively transferred to project sponsor PROLINTAS by the corporate guarantee.

Sensitised scenarios of PLSUKE’s latest base case cash flow projections show its resilience against moderate stress without affecting its ability to service the Senior Facilities and Government Support Financing (GSF), aided by sizeable pre-funded cash reserves of RM1.055 billion at the start of operations. PLSUKE is required to pay a nominal amount annually on the GSF prior to a balloon repayment in 2046. Assuming significant traffic underperformance (of 30% lower than the base case), cash flow coverage remains adequate due to the absence of early prepayments on the GSF. The base case cash flow projections assume excess revenue generation will be utilised for GSF prepayments of RM264.9 million during the tenure of the sukuk programmes.

Major Rating Factors

Strengths

  • Completion and corporate guarantees from project sponsor;
  • Support from ultimate parent for the project;
  • Direct connectivity to major highways in the Klang Valley; and
  • Long-tenured concession.

Challenges/Risks

  • Significant refinancing risk due to balloon repayment in 2027;
  • Construction cost overruns and completion delay;
  • Impact on toll revenue if traffic spillover from existing toll-free roads is lower-than-expected; and
  • Potential toll hike deferrals and delays in receipt of government compensation.
Related