CREDIT ANALYSIS REPORT

GRAND SEPADU (NK) SDN BHD - 2019

Report ID 5974 Popularity 474 views 85 downloads 
Report Date Aug 2019 Product  
Company / Issuer Grand Sepadu (NK) Sdn Bhd Sector Infrastructure & Utilities - Toll Road
Price (RM)
Normal: RM500.00        
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Rationale

MARC has affirmed its AA-IS rating on Grand Sepadu (NK) Sdn Bhd’s (Grand Sepadu) Sukuk Murabahah issuance of RM210.0 million. The rating outlook remains negative.

The affirmed rating incorporates Grand Sepadu’s adequate cash flow coverage, its moderately leveraged capital structure and the improving traffic on New North Klang Straits Bypass (NNKSB). The negative outlook highlights the concessionaire’s reliance on timely government compensation in the absence of periodic implementation of toll hikes to meet its financial obligations.

Grand Sepadu holds the toll concession of the 17.5-km NNKSB which ends in 2032. For financial period ended May 31, 2019 (5M2019), the average daily traffic (ADT) on NNKSB improved by 3.5% y-o-y, on the back of a performance turnaround at the Bukit Raja toll plaza as well as improved traffic at the Kapar toll plaza and Kapar Eastbound toll plaza. The latter two benefitted from additional traffic inflow arising from the newly-opened Jalan Haji Sirat access interchange, which provides direct access from Meru into NNKSB via the Kapar toll plaza.

In line with the improved traffic performance, the highway’s overall revenue improved by 27.2% in 5M2019 to RM24.9 million while cash flow generation stood higher at RM16.0 million (5M2018: RM10.5 million). Grand Sepadu also received 50% of its compensation for 2018 in April 2019, in lieu of toll rate hikes as per the concession agreement. The concessionaire pared down debts amounting to RM20.0 million in June 2019. As at July 31, 2019, the outstanding under the programme stood at RM170.0 million.

Notwithstanding the improved traffic performance and financial profile, stressed scenarios reveal the concessionaire remains susceptible to timely toll hike implementation, failing which timely government compensation is crucial to be able to meet its financial objectives. Going forward, MARC also expects traffic volume growth to remain muted in light of the mature profile of NNKSB coupled with the minimal population growth in the Klang area. In this regard, MARC expects Grand Sepadu to prudently manage its dividend distribution as the scheduled toll hike in 2020 may not materialise while the concessionaire faces a step-up in its principal repayments to RM30.0 million p.a. from 2021 to 2023. The rating could come under pressure if the scheduled toll hikes are delayed without timely government compensation.

Major Rating Factors

Strengths

  • Mature highway with resilient traffic profile;
  • Moderately leveraged capital structure; and
  • Limited alternative routes with equivalent capacity.

Challenges/Risks

  • Uncertainty in toll rate hikes and timing of government compensation; and
  • Susceptibility of traffic performance to port operations.
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