LEBUHRAYA DUKE FASA 3 SDN BHD - 2023 |
||||||||
| Report ID | 60538900469505 | Popularity | 316 views 140 downloads | |||||
| Report Date | Aug 2023 | Product | ||||||
| Company / Issuer | Lebuhraya Duke Fasa 3 Sdn Bhd | Sector | Infrastructure & Utilities - Toll Road | |||||
| Price (RM) |
|
|||||||
| Rationale |
Rating action MARC Ratings has affirmed its AA-IS rating on toll concessionaire Lebuhraya DUKE Fasa 3 Sdn Bhd’s (DUKE 3) outstanding RM3.64 billion Sukuk Wakalah, with a stable outlook. Rationale DUKE 3 is the concessionaire for the 32-km Setiawangsa-Pantai Expressway (SPE) that connects Middle Ring Road 2 (MRR2) at Wangsa Maju to Kerinchi Link adjoining Federal Highway. The concession runs through August 5, 2069. The rating continues to incorporate the adequately structured sukuk repayment profile that accommodates traffic ramp-up on SPE. The sukuk is fully amortising; annual debt service is back-loaded with a gradual ramp-up from RM5.0 million (first principal repayment due on August 23, 2024) to RM440.0 million at maturity in 2039. This provides some headroom for DUKE 3 to build up traffic volume, generate cash and meet its financial obligations. The rating also considers SPE’s well-positioned alignment within mature catchment areas. The project is practically complete with only minor work remaining. The company received its Certificate of Practical Completion on May 21, 2023, and inspections by Lembaga Lebuhraya Malaysia (LLM) are currently underway. The concessionaire expects SPE to fully open by end-August 2023. We note that one section of the highway (Section 4, Wangsa Maju toll plaza) has commenced tolling since March 1, 2022. In 2022, annual average daily traffic (AADT) at the operating toll plaza reached 5,058 vehicles. During the first four months of 2023, AADT showed an increase of 26%, reaching 6,375 vehicles. Traffic, however, remains significantly below its opening year forecast of 32,717 vehicles. We believe usage may improve once SPE is fully operational but would require a considerable ramp-up. Nevertheless, the company has no immediate liquidity pressure of significant debt maturing in the short to medium term. It has cash of RM259.6 million as of end-May, 2023, to cover liquidity needs, including approximately RM94.0 million to complete SPE. DUKE 3’s cash position is further supported by RM90 million to be placed by project sponsor Ekovest Berhad into the Operating Revenue Account (ORA) upon project completion. At the same time, the RM184.5 million currently in the Construction Reserve Account will also be transferred into the ORA. The total RM274.5 million in the ORA – in the form of an irrevocable and unconditional bank guarantee (BG) — can be drawn down partly or fully when required. Under MARC Ratings’ rating case assuming full tolling in October 2023, a deferment in the repayment of the Reimbursable Interest Assistant (RIA) of RM560.0 million to after full settlement of the sukuk in FY2040 (the RIA is technically subordinated to the sukuk in terms of cash flow or payment priority), and no toll hikes and a one-year deferment in toll compensation in lieu of the toll hikes, finance service coverage ratio (FSCR) is expected to meet the covenanted 1.5x up to FY2032, with an average FSCR projected at 1.7x. In terms of financial flexibility, the current financing structure provides DUKE 3 with a 30-year tail period, providing room for a refinancing exercise, if required. Rating trajectory Upside scenario Upside potential to the rating is limited in the near term given the absence of a traffic track record. Any upside rating potential over the longer term would be contingent on strong traffic performance leading to sustained improvement in its credit metrics. Downside scenario A material and sustained traffic underperformance with adverse impact on cash flow generation and credit metrics could lead to a negative rating action. Key strengths
Key risks
|
|||||||
| Related | ||||||||
