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 agency has also affirmed PLSUKE’s bank-guaranteed Facilities of up to RM500.0 million at AAA_IS(bg)/stable. The Facilities were previously guaranteed by Danajamin Nasional Berhad but were transferred over to Bank Pembangunan Malaysia Berhad (BPMB) following the transfer of the former’s businesses and undertakings to the latter effective March 1, 2023. BPMB carries a financial institution rating of AAA/stable.     

Rationale      

PLSUKE is wholly owned by Projek Lintasan Kota Holdings Sdn Bhd (PROLINTAS), an indirect subsidiary of Permodalan Nasional Berhad (PNB), 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 24.4-km toll road that will connect southern Klang Valley at Sri Petaling and northern Klang Valley at Ulu Kelang. The road is being developed under a 55-year government concession effective December 25, 2014, with a conditional extension for 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, as well as an unconditional and irrevocable corporate guarantee for all principal repayments and profit payments due and payable under the programme. 

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. 

On September 16, 2022, Phase 1 of SUKE, a 16.6-km segment of the road running from the Cheras-Kajang interchange to Bukit Antarabangsa, was opened to motorists. Tolling commenced on October 15, 2022, after a month of free use following its official opening in September. Between October 15 and December 31, 2022, traffic volume at the opened Ampang and Teratai toll plazas averaged 56,263 vehicles per day. In 2023 through June 14, the annual average daily traffic (AADT) recorded a 16.6% growth to 65,580 vehicles compared with the October 15 to December 31 period in 2022. As road usage gradually grows, coupled with the recent opening of SUKE Phase 2, AADT could see further improvement going forward. 

As of June 4, 2023, construction was near completion with progress reported at 99.6%. PLSUKE had — on May 15, 2023 — received approval from Lembaga Lebuhraya Malaysia (LLM) for a fourth extension of the deadline for the completion of the highway from March 3, 2023, to August 20, 2023 (EOT No. 4). The EOT request is claimed due to a delay in getting regulatory approval regarding certain sewerage pipes along the expressway. 

Notwithstanding the EOT request, PLSUKE anticipates the expressway to be fully completed by August 20, 2023, and for Phase 2 (Alam Damai) to start tolling by end-June, 2023. We have, under our sensitised case, incorporated a three-month (beginning September 2023) and a six-month (beginning December 2023) delay in tolling. FSCR under these scenarios would fall below the covenanted 1.5x in 2025. In this regard, we expect shareholders to extend financial support, if required.

Overall, our assessment remains unchanged that the principal repayment under the Senior Facilities of up to RM4.7 billion comprising the Sukuk Wakalah, Bank-Guaranteed Sukuk and the Syndicated Islamic Term Facilities (SITF) which are due in 2027 will need to be refinanced. The refinancing risk, we believe, is mitigated by PLSUKE’s relation to PROLINTAS and PNB. The long remaining life of the concession (at least 42 years from 2027) should also facilitate refinancing.    

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

A positive rating action could stem from improvement in the parent’s credit profile.

A significant construction delay and/or an indication of weakening support from PROLINTAS/PNB, for example, in the form of significantly delayed or insufficient capital support. A refinancing plan not executed in a timely manner would also lead to downward rating pressure.