SISTEM PENYURAIAN TRAFIK KL BARAT SDN BHD - 2018

MARC has affirmed its A+_IS rating on toll concessionaire Sistem Penyuraian Trafik KL Barat Sdn Bhd’s (SPRINT) Al-Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS). Concurrently, the rating outlook has been revised to developing. SPRINT is the toll concessionaire of the 26.5-km interlinked SPRINT highways comprising Damansara Link, Kerinchi Link and Penchala Link in Kuala Lumpur.

The developing outlook reflects the uncertainty on the outcome of negotiations between SPRINT’s major shareholder, Gamuda Berhad, and the Malaysian government for the latter to acquire the group’s four highway concession assets including SPRINT. If the takeover of the highways is successful, the government has announced its intention to replace the existing toll mechanism with a staggered tolling structure that would impact toll revenue. The rating affirmation is primarily based on SPRINT’s adequate cash flow coverage arising from its relatively mature traffic profile and ample cash reserves that are sufficient to meet its BaIDs payment. These factors are moderated by its highly leveraged capital structure.

SPRINT’s current cash balance in its designated accounts (excluding the operating account) is sufficient to meet its upcoming BaIDS principal repayment of RM128 million in December 2019. SPRINT continues to record declining traffic volume; for 8M2018, overall volume fell 5.4% y-o-y, led by Penchala Link (negative 11.7%), Kerinchi Link (negative 2.6%) and Damansara Link (negative 1.8%). As a result, average daily traffic (ADT) for 8M2018 declined to 194,302 vehicles, about 6.9% below projections.

For financial year ended March 31, 2018 (FY2018), SPRINT’s toll collection revenue declined 2.6% y-o-y to RM186.6 million; Penchala Link and Kerinchi Link continued to be the largest revenue contributor to SPRINT in view of their higher toll rates compared to Damansara Link. SPRINT recorded lower pre-tax losses of RM5.9 million on the back of lower amortisation charges and finance costs. Cash flow from operations (CFO) stood at RM171.3 million, lower than the RM219.8 million from the previous period mainly due to the increase in receivables. Consequently, CFO interest coverage stood lower at 3.04x (FY2017: 3.37x). Over the medium term, MARC views CFO generation as sufficient to meet the final payment of RM80 million in December 2020. The rating agency also notes that the bulk of the government support loan will commence only after the maturity of the rated BaIDS.

Based on MARC’s sensitivity analysis, SPRINT would remain in compliance with the covenanted debt coverage ratio of 1.50x should toll revenue on all links come in 25% lower than the base case revenue. As at end-March 2018, SPRINT’s debt-to-equity (DE) and facility DE ratio stood at 4.06x and 1.12x.

Major Rating Factors

Strengths

• Adequate cash flow coverage from relatively mature highways;
• Financial flexibility on deferred debt service of government support loans; and
• Debt repayment ability supported by strong cash reserves.

Challenges/Risks

• Traffic underperformance from the interlinked tolled roads;
• Moderately high leveraged capital structure; and
• Competition from toll-free alternative routes and new highways.