MARC has extended its MARCWatch Developing placement on Projek Lebuhraya Usahasama Berhad’s (PLUS) RM23.35 billion Sukuk Musharakah Programme. This rating action follows from the initial rating action in January 2020 which placed PLUS’ sukuk programme on watch. The sukuk programme carried a AAA_IS /Stable rating prior to the MARCWatch placement which was precipitated by a government announcement to reduce toll rates by 18% on PLUS-owned highways and concurrently freeze toll hikes throughout its concession period without any government compensation. In lieu of these measures, PLUS’ concession is expected to be extended by 20 years, to end-2058 from end-2038.

MARC understands that PLUS and the government are in negotiations to iron out the details stemming from the announcement and thereon address the implications on the toll concessionaire’s revenue and cash flows. The rating agency opines that both parties will seek to reach an optimum and balanced outcome for all stakeholders which could involve a restructuring of PLUS’ sukuk. Nonetheless, the change in the government administration in February 2020 has meant that the time taken to conclude the negotiations would be longer than had been initially anticipated. MARC’s extension of the developing placement therefore continues to reflect the pending outcome of the negotiations with the government. Until the toll restructuring is complete, the existing concession agreements and supplemental concession agreements will continue to subsist and remain in full force.

The 18% toll cut is applicable to vehicles in Class 1 (passenger cars), Class 4 (taxis) and Class 5 (buses) effective February 1, 2020. MARC’s assessment indicates no pressure on PLUS’ debt-servicing ability in the immediate term, although the longer-term implications on the company’s credit metrics are subject to the outcome of the negotiations with the government. The amount outstanding under PLUS’ rated Sukuk Musharakah programme currently stands at RM18.4 billion, following the principal repayment of RM500 million on January 10, 2020.  

MARC notes that the impact from the recent coronavirus outbreak and the ensuing Movement Control Order (MCO) imposed since March 18 has created a challenging environment for the toll road sector. The rating agency has observed major revenue losses across MARC-rated highway operators since the imposition of the MCO. Nonetheless, with existing cash balance of RM3.1 billion as at March 31, 2020, PLUS would still be able to support its liquidity position in the near term.

PLUS is the toll concessionaire of five highways in Malaysia comprising North-South Expressway (NSE), New Klang Valley Expressway, North-South Expressway Central Link, Malaysia-Singapore Second Link, Butterworth-Kulim Expressway and Penang Bridge. Of these, the 771-km NSE remains its key highway in terms of revenue contribution, generating more than two-thirds of total toll revenue.

The rating agency will resolve the MARCWatch placement upon assessment of the outcome of PLUS’ negotiations with the government and the company’s plans arising from the changes in the toll rates and concession period.