Report ID 6053640 Popularity 171 views 37 downloads 
Report Date Apr 2021 Product  
Company / Issuer Senai-Desaru Expressway Berhad Sector Infrastructure & Utilities - Toll Road
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Rating action     
MARC has affirmed its BBB-IS rating for Senai-Desaru Expressway Berhad’s (SDEB) RM1.89 billion Islamic Medium-Term Notes Programme (Restructured Sukuk) and revised the outlook to negative from stable.

SDEB is the concessionaire of the 77-km tolled inter-urban Senai-Desaru Expressway (SDE) in Johor, which links the towns of Senai and Desaru with a connecting highway to Pasir Gudang. The rating affirmation factors in the adequate near-term liquidity and the accommodative amortisation schedule of the Restructured Sukuk.  The back-ended financing structure -  the first principal repayment is only due in 2038 - and the step-up profit feature provide some headroom to build up cash, strengthen SDEB’s liquidity position and maintain compliance with the covenanted finance service cover ratio (FSCR) of 1.25x. The Restructured Sukuk remains exposed to refinancing risk, but we believe this is partially mitigated by a demonstrated record of capital market access.

For 2020, traffic volumes fell by 24% and revenue declined by 13% from prior year levels. Traffic volume growth, which has fallen short from projections in recent years, was exacerbated by the impact from the pandemic. Monthly traffic volume was 56.4% lower y-o-y during the movement control order (MCO) period between March and May 2020, recovering to pre-crisis level by August 2020 with the easing of restrictions but declining 4Q2020 when the conditional MCO (CMCO) was imposed. As a consequence, SDEB’s key financial metrics came under immense pressure with cash from operations (CFO) interest coverage dipping below 1.0x in fiscal 2020.

In the medium term, its debt service ability would be contingent on significant traffic growth on SDE, although the prospects of this happening remain weak at this juncture. Another factor would be its ability to implement toll increases (or in lieu government compensation) to sustain the back-loaded Restructured Sukuk structure that includes some profit accretion. As at end-2020, SDEB’s cash balance stood at RM55.3 million that is adequate to cover its profit obligations of RM27.9 million due in 2021. However, the liquidity buffer will be tight by mid-2022 as approximately RM61.1 million of profit payments will come due in that year.

Rating outlook     
The negative outlook reflects our concerns that the prevailing weak revenue generation and the impact of the ongoing pandemic on traffic volumes on SDE have heightened liquidity pressures in the medium term.

Rating Trajectory

Upside scenario     
Highly unlikely for a rating upgrade in the near term given the challenges SDEB faces regarding traffic and revenue growth post-pandemic vis-à-vis its sizeable financial obligations.

Downside scenario     
The rating would be lowered if SDEB’s weakened operating performance does not reverse course over the next 12–18 months, leading to further weakening in its liquidity position. 

Key strengths
  • Structural protection for sukukholders
  • Accommodative debt repayment schedule in initial years
  • Moderate refinancing risk 
Key risks
  • Medium-term liquidity pressure
  • Weak financial leverage
  • Growth highly reliant on planned but uncertain developments along the highway