KONSORTIUM LEBUHRAYA UTARA-TIMUR (KL) SDN BHD - 2021 |
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| Report ID | 60538900369 | Popularity | 713 views 125 downloads | |||||
| Report Date | Oct 2021 | Product | ||||||
| Company / Issuer | Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd | Sector | Infrastructure & Utilities - Toll Road | |||||
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| Rationale |
Rating action MARC has affirmed its ratings on Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd’s (Kesturi) RM2.3 billion Sukuk Musharakah (Senior Sukuk) and RM180 million Redeemable Secured Junior Bonds (Junior Bonds) at AA-IS and A-. The ratings outlook has been revised to negative from stable. The three-notch rating differential between the Senior Sukuk and Junior Bonds reflects the latter’s subordination to the Senior Sukuk in regard to security ranking and payment priority. Rationale Kesturi operates the 18-km Duta-Ulu Kelang Expressway (DUKE) Phase-1 and the 16- km DUKE Phase-2 until August 2059 with an option to extend for another 10 years. DUKE Phase-1 has been operational since 2009 while DUKE Phase-2 commenced full operations following the opening of its Tun Razak Link and Sri Damansara Link on September 28, 2017 and October 23, 2017, respectively. Kesturi is 60%- and 40%-owned by Ekovest Berhad (Ekovest) via Nuzen Corporation Sdn Bhd (Nuzen Corporation) and the Employees Provident Fund (EPF). The affirmed ratings continue to reflect MARC’s view of the highways’ relatively strong competitive position with easy accessibility to a wide network of major roadways, the company’s amortising debt structure that is commensurate with its cash flow generation and the long remaining life of its concession. Moderating the ratings are the highly leveraged capital structure, the limited capacity on DUKE Phase-1 during peak hours that could hinder future traffic growth and the event of a toll rate hike deferral that could weigh on project cash flows at a later stage. The negative outlook reflects the downside risk to Kesturi’s ability to maintain the covenanted finance service cover ratio (FSCR) of 1.75x given the impact of the COVID-19 pandemic and Movement Control Order (MCO) on traffic volume and tolling revenue. Under the base case scenario, Senior FSCR with cash is expected to register at 1.69x in FY2021. The projections assume a recovery in traffic volume to pre-pandemic levels in FY2022. In 9MFY2021, annual average daily traffic (AADT) was 154,237, lower by 20.7% y-o-y due to the varying degrees of the MCO imposed to curtail the pandemic. Pre-tax losses widened to RM35.3 million in 9MFY2021 on lower revenue and higher net financing cost (FY2019: -RM10.2 million). However, near-term liquidity is considered adequate. With operating cash inflow of around RM220 million expected for FY2022, together with a cash balance of about RM151 million as of end-June 2021, there will be sufficient cash for Kesturi to meet its Senior Sukuk’s principal repayment and profit payment of RM133 million on December 2, 2021, and profit payment of RM52 million on June 2, 2022. Though sukukholders could call an occurrence of FSCR below the covenant as an event of default under the sukuk terms, Kesturi is expected to still be able to service its debt obligations in a timely manner. We will continue to monitor the effects of the pandemic on Kesturi’s financial performance and credit profile. Rating Outlook The negative outlook reflects a weakening of financial metrics due to the impact of the pandemic and MCO on traffic volume and tolling revenue. Under the base case scenario, we estimate that traffic volume will need to grow by 8%-10% from FY2019 levels to meet the covenanted FSCR in FY2022. Rating Trajectory Upside scenario A rating upgrade is unlikely in the near term given the challenges Kesturi faces with regard to traffic and revenue growth post-pandemic vis-à-vis an increase in financial obligations due to the step-up repayment feature of the senior sukuk. Downside scenario The rating may be pressured in the absence of mitigating actions to shore up liquidity to remedy the covenant breach and if traffic volume and tolling revenue in the next six months remains insufficient for Kesturi to meet the covenanted FSCR. Key strengths
Key risks
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