View Credit Analysis Report (605248)

SubcategoryInfrastructure & Utilities - Toll Road
Date Article2020-09-09 00:00:00
MARC has affirmed its A+IS(s) rating on Projek Lintasan Sungai Besi-Ulu Klang Sdn Bhd’s (PLSUKE) Sukuk Wakalah Programme (Sukuk Wakalah) of up to RM2.0 billion. The rating outlook has been revised to stable from negative. 

The previous negative outlook reflected a potential construction delay then in relation to the company’s Sungai Besi-Ulu Kelang Elevated Expressway (SUKE) project and the impact the delay would have on the credit profiles of both the issuer and immediate parent Projek Lintasan Kota Holdings (PROLINTAS). MARC has since lowered its rating assessment on PROLINTAS and accordingly revised the outlook from negative to stable, taking into account also the extension of time granted to PLSUKE by Lembaga Lebuhraya Malaysia to complete the project by November 2021, from August 2020 previously. Nevertheless, the issue rating on PLSUKE’s Sukuk Wakalah remains at A+IS(S) on a high likelihood of financial support from ultimate parent Permodalan Nasional Berhad (PNB), supporting a two-notch uplift in the rating. 

Concurrently, MARC has also affirmed its AAAIS(fg)/Stable rating on PLSUKE’s Danajamin-Guaranteed Facilities (Danajamin-Guaranteed Sukuk) of up to RM500.0 million. Danajamin Nasional Berhad (Danajamin) carries a long-term counterparty credit rating of AAA/Stable from MARC.

PLSUKE is wholly owned by PROLINTAS, an investment holding company with a portfolio of six toll road concessions, of which four are in operation while two are under construction. PLSUKE is undertaking the construction of the 24.4-km SUKE 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 has also given its corporate guarantee on PLSUKE’s principal repayments and profit payments vis-à-vis its Senior Facilities and Government Support Financing (GSF).

PROLINTAS is wholly owned by PNB, an investment management company owned by the government. PROLINTAS’ long-term rating of A+ benefits from a two-notch rating uplift from PNB based on demonstrated support from the ultimate parent. PNB has injected around RM3.05 billion into PROLINTAS over  the past four and  a half 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. Its standalone rating has, however, weakened on project delays, potential cost overruns and substantial finance cost weighing on profitability and cash flow protection metrics.

With regard to the project, as at May 20, 2020, SUKE was behind schedule by close to 6.8 percentage points (actual 74.8%) and is unlikely to be finished by the scheduled August 28, 2020 completion date. Progress was partly hindered by late approval for site possession at the Indah Water Konsortium (IWK) Pond at Work Package CA3. There were also a host of COVID-19-related challenges with schedule consequences. These include, among others, supply delivery issues, movement restrictions due to the imposition of the movement control order (MCO) and loss of productivity during the MCO. PLSUKE has, nevertheless, been granted an approval for an extension of time (EOT) to complete the project by November 2021, from August 2020 as previously scheduled.

Despite the EOT to November 2021, PLSUKE has an internal target completion date of April 2021. It has assumed tolling to commence in May 2021 with an initial traffic volume of 74.5 million (annualised). However, our sensitised scenario has assumed tolling to start only in 2022 with an initial traffic volume of 59.6 million (20% stress to base case first year traffic in 2021) and a gradual increase in the following years, with volume growing 3%-5% p.a. (against base case growth rate of 8.6% per year, except for year 2025 with toll rate hike). MARC has also assumed no toll rate hikes and no government compensation.

Our sensitised scenario projects the financial service cover ratio (FSCR) to remain above the covenanted 1.5x for 2021-2025. Significant pre-funded cash and reserves amounting to RM1.055 billion ensure PLSUKE will comfortably cover its profit and interest obligations for the 2021-2025 period. However, principal repayment will continue to be materially constrained by the bullet-payment structure of the company’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 due in 2027. PLSUKE’s standalone debt servicing ability is weak; it is unlikely to generate enough cash flow in seven years to meet the bullet repayment in 2027. In the absence of financial support from its shareholders, the company will need to refinance its financial obligations by 2027. In this regard, it may need to depend on PROLINTAS’ and PNB’s credit strength to help address any potential refinancing risk. The long remaining tenure of the concession (at least 42 years from 2027) could also provide room for such refinancing exercise.

Major Rating Factors 
  • Completion and corporate guarantees from project sponsor;
  • Support from ultimate parent for the project;
  • Direct connectivity to major highways in the Klang Valley; and 
  • Long-tenured concession.
  • Significant refinancing risk due to balloon repayment in 2027;
  • Construction cost overruns and completion delay;
  • Lower-than-expected traffic volumes; and 
  • Potential toll hike deferrals and delays in receipt of government compensation. 
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