MARC Ratings has affirmed its A+_IS(s) and AAA_IS(bg) ratings on Projek Lintasan Sungai Besi – Ulu Klang Sdn Bhd’s (PLSUKE) Sukuk Wakalah Programme of up to RM2.0 billion and Bank-Guaranteed Facilities of up to RM500.0 million. The latter is guaranteed by Bank Pembangunan Malaysia Berhad (BPMB) which carries a financial institution rating of AAA from MARC Ratings. All ratings carry a stable outlook. 

PLSUKE is wholly owned by Projek Lintasan Kota Holdings Sdn Bhd (PROLINTAS), an indirect subsidiary of Permodalan Nasional Berhad (PNB). PLSUKE operates the Sungai Besi-Ulu Kelang Elevated Expressway (SUKE), a 24.4-km toll road running from Sri Petaling to Ulu Kelang, in the Klang Valley, under a 55-year concession agreement (CA) that ends in December 2069 (with a conditional extension for another 10 years). 

The A+_IS(s)  rating on the Sukuk Wakalah reflects the unconditional and irrevocable corporate guarantee provided by PROLINTAS 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. 

Since MARC Ratings’ last review, Phase 2 of the expressway, spanning from Sri Petaling to Cheras-Kajang, was opened to motorists on June 15, 2023, and on June 30, tolling was initiated after a two-week toll-free travel period. Soon after, the Alam Damai Elevated Interchange, which provides direct access between SUKE and Jalan Alam Damai, opened on October 20. This brought SUKE’s annual average daily traffic (AADT) for full year 2023 to 88,099 vehicles, up from 65,581 achieved between January 1 and June 14, 2023. In 2024 through April 22, AADT increased to 110,885 vehicles. We believe road usage will continue to improve over the medium term, benefitting from SUKE’s multi-connectivity to major highways and matured catchment areas.

Similarly seen in the last review, PLSUKE’s base case projections foresee the concessionaire being able to meet its covenanted Finance Service Cover Ratio (FSCR) of 1.5x in 2024 and 2025. The FSCR is projected to fall below the covenant in 2026, under both the base case and MARC Ratings’ sensitised case, which incorporates mainly reduced traffic growth of 5% p.a. from 2024 to 2026 (base case: 41%). 

Overall, our view on the bullet repayment and assessment on refinancing risk have remained unchanged from the previous review. PLSUKE has a RM4.7 billion Senior Facilities — comprising the Sukuk Wakalah, Bank-Guaranteed Sukuk and the Syndicated Islamic Term Facilities (SITF) — due on November 26, 2027, that it will need to refinance. We understand that PLSUKE has kickstarted a refinancing plan, which it expects to complete by end-2024. The refinancing risk, in our view, is mitigated by PLSUKE’s relation to PROLINTAS and PNB, with demonstrated access to the bank funding and capital markets. The long remaining life of the concession (at least 42 years from 2027) should also facilitate refinancing.

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

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

An indication of weakening support from PROLINTAS/PNB, i.e. in the form of significantly delayed or insufficient capital support, and/or failure to devise a refinancing plan to cover the 2027 maturities in a timely manner, could lead to a negative rating action.