CREDIT ANALYSIS REPORT

PROJEK LINTASAN SUNGAI BESI – ULU KLANG SDN BHD - 2021

Report ID 6053674 Popularity 33 views 9 downloads 
Report Date Jun 2021 Product  
Company / Issuer Projek Lintasan Sungai Besi-Ulu Klang Sdn Bhd Sector Infrastructure & Utilities - Toll Road
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Rationale
Rating action     
MARC has affirmed its A+IS(s) rating on Projek Lintasan Sungai Besi – Ulu Klang Sdn Bhd’s (PLSUKE) Sukuk Wakalah Programme of up to RM2.0 billion, with a stable outlook. MARC has also affirmed its AAAIS(fg)/Stable rating on PLSUKE’s Danajamin-Guaranteed Facilities (Danajamin-Guaranteed Sukuk) of up to RM500.0 million. Danajamin Nasional Berhad (Danajamin) carries a long-term counterparty credit rating of AAA/Stable from MARC.

Rationale     
PLSUKE is fully owned by Projek Lintasan Kota Holdings Sdn Bhd (PROLINTAS), in turn a wholly-owned subsidiary of Permodalan Nasional Berhad (PNB). It is undertaking the construction of the 24.4-km Sungai Besi-Ulu Kelang Elevated Expressway (SUKE) under a 55-year government concession effective December 25, 2014, with a conditional extension of another 10 years.

The rating on the Sukuk Wakalah reflects the credit strength of PROLINTAS and takes into consideration the unconditional and irrevocable completion guarantee provided to PLSUKE to cover potential cost overruns and shortfalls in the finance service reserve account (FSRA) and/or finance payment account (FPA) during the construction period, as well as a corporate guarantee on PLSUKE’s principal repayments and profit payments vis-à-vis its Senior Facilities — comprising the Sukuk Wakalah, Danajamin-Guaranteed Sukuk and the Syndicated Islamic Term Facilities (SITF) — and Government Support Financing.

PROLINTAS has a long-term rating of A+ which benefits from a two-notch rating uplift for parental support based on PNB’s history of demonstrated support including subscription to PROLINTAS’ share issuance and cumulative convertible redeemable preference shares  (CCRPS). PROLINTAS’ standalone credit profile meanwhile takes into consideration its established track record as a highway developer, operator and concessionaire.

Construction of SUKE is under a fixed-price engineering, procurement and construction (EPC) contract with Turnpike Synergy Sdn Bhd (Turnpike), a 100% subsidiary of PROLINTAS. This, with a back-to-back performance guarantee built into the agreement, should mitigate any cost overruns and/or delay-related penalties. Completion risk is mitigated by significant progress to date and committed construction funding in place. As of May 16, 2021, construction was largely complete with progress reported at 90%. A stop-work order following an incident in Alam Damai on March 22, 2021 has been lifted. Notwithstanding this, our sensitised scenario has assumed a downside case for completion, traffic volume and toll rates. The resulting cash flows produce a Finance Service Cover Ratio (FSCR) still above 1.5x for 2021-2024, supported by approximately RM1.055 billion of pre-funded cash and reserves. However, FSCR will likely come below the covenant by 2025, where we expect shareholders’ support to be forthcoming.

Unchanged from our previous assessment, principal repayment will be materially constrained by the non-amortising structure of the Senior Facilities, which means up to RM4.7 billion will need to be repaid in seven years. This will require a refinancing by 2027. In this regard, PLSUKE may need to depend on PROLINTAS’ and PNB’s credit strength to help address any potential refinancing risk. The long remaining tenure of the concession (at least 42 years from 2027) could also provide room for such refinancing exercise.

Rating outlook     
The stable outlook reflects our expectation that the parent’s and ultimate parent’s ability and/or propensity to support PLSUKE will not weaken.

Rating trajectory

Upside scenario     
An upgrade in the near term appears unlikely as a performance track record has yet to be established, and will require a significant strengthening of a number of financial metrics. However, upside could stem from improvement in the parent’s credit profile.

Downside scenario     
The rating may be pressured in the event of:
  • a significant construction delay and/or an indication of a weakening in PROLINTAS’ / PNB’s ability and propensity to support PLSUKE, for example, in the form of significantly delayed or insufficient capital support.
  • a refinancing plan that is not executed in a timely manner.

Key strengths
  • Completion and corporate guarantees from project sponsor
  • Support from ultimate parent for the project
  • Direct connectivity to major highways in the Klang Valley
  • Long-tenured concession

Key challenges/risks
  • Refinancing risk due to balloon repayment in 2027
  • Construction cost overruns and completion delay
  • Lower-than-expected traffic volumes
  • Potential toll hike deferrals and delays in receipt of government compensation


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