CREDIT ANALYSIS REPORT

PROJEK LINTASAN SUNGAI BESI – ULU KLANG SDN BHD - 2022

Report ID 605389004683 Popularity 127 views 14 downloads 
Report Date Apr 2022 Product  
Company / Issuer Projek Lintasan Sungai Besi-Ulu Klang Sdn Bhd Sector Infrastructure & Utilities - Toll Road
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Rationale
Rating action     
MARC Ratings 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. The rating outlook is stable. The rating on PLSUKE’s Danajamin-guaranteed Facilities of up to RM500.0 million has also been affirmed at AAAIS(fg)/stable rating on based on long-term counterparty credit rating of AAA/stable on Danajamin Nasional Berhad (Danajamin). 

Rationale     
PLSUKE is wholly owned by Projek Lintasan Kota Holdings Sdn Bhd (PROLINTAS), an indirect subsidiary of Permodalan Nasional Berhad (PNB). PNB is a government-owned fund management company and one of Malaysia’s largest investment corporations. PLSUKE is undertaking the construction of Sungai Besi-Ulu Kelang Elevated Expressway (SUKE), a 24.4km three-lane dual carriageway expressway that will connect southern Klang Valley at Sri Petaling and northern Klang Valley at Ulu Kelang.  The project is 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, which has extended an unconditional and irrevocable completion guarantee to cover potential cost overruns and shortfalls in the finance service reserve account (FSRA) and/or finance payment account (FPA) during the construction period, if any. 

PROLINTAS’ long-term rating of A+ benefits from a two-notch rating uplift from PNB based on the demonstrated support from the ultimate parent. PNB has injected around RM3.6 billion into PROLINTAS over the past six years through subscription of ordinary shares 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. 

As of January 25, 2022, construction was largely complete with progress reported at 94.75%. By work package, six have achieved 100% completion while three packages are still under construction with completion rates between 87% and 93%. PLSUKE has received approval for a second extension of time (EOT No. 2) to complete the project by August 12, 2022, from November 14, 2021 (EOT No. 1). With this, our rating case expects tolling to commence in December 2022. 

The resulting cash flows produce a finance service cover ratio (FSCR) of above the covenanted 1.5x for 2022–2026, supported by pre-funded cash and reserves. Based on our sensitivity analysis, further 3-month and 6-month tolling delays from December 2022 would cause FSCRs to fall below the covenant in 2026. 

Unchanged from our previous assessments, principal repayment will continue to be materially constrained by the bullet-payment structure of the concessionaire’s Senior Facilities comprising the Sukuk Wakalah, Danajamin-Guaranteed Sukuk and the Syndicated Islamic Term Facilities (SITF); the Senior Facilities of up to RM4.7 billion in aggregate are non-amortising, with all being due in 2027. In this regard, a refinancing would be required. PLSUKE’s linkages to PROLINTAS and PNB could help address any potential refinancing risk while the long remaining tenure of the concession (at least 42 years from 2027) provides room for a 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 significant strengthening of a number of financial metrics. However, potential rating 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
Strong support record from ultimate parent, PNB
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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