PROJEK LEBUHRAYA USAHASAMA BERHAD - 2018

MARC has affirmed its AAA_IS rating on Projek Lebuhraya Usahasama Berhad's (PLUS) RM23.35 billion Sukuk Musharakah Programme (sukuk). Concurrently, the rating outlook has been revised to stable from negative. PLUS is the toll concessionaire of five major highways in Malaysia, of which the 772-km North-South Expressway (NSE) is its key highway in terms of revenue generation.

The outlook revision to stable factors in PLUS’ healthy liquidity profile and cash balance on the back of stable traffic performance of its portfolio of matured highways that allows the toll concessionaire some leeway to withstand shifts in the prevailing regulatory environment for the domestic toll sector in the intermediate term.

The rating affirmation incorporates a two-notch rating uplift from PLUS’ standalone rating of AA on the premise of the interdependence between default events for the rated sukuk and the RM11.0 billion government-guaranteed sukuk maturing after the rated programme. MARC considers the government’s golden share and indirect major shareholding in PLUS as well as the critical role of NSE in the country’s transportation system as factors underpinning the rating uplift.

PLUS’ portfolio comprises New Klang Valley Expressway (NKVE), NSE, North-South Expressway Central Link (NSECL), Malaysia-Singapore Second Link (MSSL), Butterworth-Kulim Expressway (BKE) and the Penang Bridge. MARC notes that the loss of toll revenue from the abolishment of the Batu Tiga-Sungai Rasau and the Bukit Kayu Hitam tolls from January 1, 2018 as well as the abolishment of toll collection for motorcycles on the Penang Bridge and MSSL beginning January 1, 2019 will not have a significant impact on PLUS’ overall toll revenue. The loss of toll revenue from these abolishments is estimated to be less than 2.8% of PLUS expressways’ projected total revenue.

For 9M2018, PLUS’ overall traffic volume was within the rating agency’s expectation with aggregate traffic volume growing by 1.6% y-o-y. Traffic volume on MSSL and NSECL has continued to grow but at slower rates while traffic volume on NKVE had declined marginally, possibly due to traffic diversion to the Federal Highway following the toll-free access to Batu Tiga and Sungai Rasau. In the northern region, traffic growth on both the Penang Bridge and BKE remained subdued.  For 9M2018, PLUS’ tolling revenue declined marginally by 2.2% y-o-y to RM2.7 billion, partly due to toll abolishment at the Batu Tiga-Sungai Rasau and Bukit Kayu Hitam toll plazas. Net operating cash flow was lower at RM1.9 billion, leading to lower free cash flow of RM1.6 billion.

PLUS shareholders’ funds declined to negative RM531.9 million, although the negative equity base could be addressed if the concessionaire was to adopt a moderate distribution policy particularly due to upcoming large principal repayments on the rated sukuk, averaging RM580 million p.a. between 2019 and 2023. Nonetheless, MARC derives comfort from the restrictive post-distribution finance service coverage ratio (FSCR) covenant of 2.00x.

PLUS’ average post-distribution forward-looking FSCR with cash of 7.29x demonstrates sufficient liquidity to meet its financing obligations. MARC’s sensitivity analysis shows the concessionaire's susceptibility to traffic growth decline on NSE compared to deferrals in toll rate increases throughout the sukuk tenure. In MARC’s opinion, coupon payment for redeemable convertible unsecured loan stock must be managed in order to maintain its liquidity position to provide downside protection.  

Major Rating Factors

Strengths

• Portfolio of matured toll road concessions with stable traffic profiles;
• Presence of cross-default provisions in government-guaranteed sukuk; and
• Stature of shareholders.

Challenges/Risks

• Highly leveraged transaction structure;
• Threats from upcoming alternative toll roads and rail networks; and
• Inherent regulatory risks.