Thursday, Feb 26, 2004
MARC has reaffirmed the long-term rating of Sistem-Lingkaran Lebuhraya Kajang Sdn Bhd’s (SILK) RM2.01 billion Al-Bai’ Bithaman Ajil debt securities at AID. The rating reflects the perceived strong demand for the Kajang Traffic Dispersal Ring Road to relieve severe traffic congestion in the Kajang District. Project demand is further underpinned by the Ring Road’s function as a primary urban road linking the populous districts of Balakong, Sungai Long, Semenyih, Bangi, Kajang and Serdang in the south-eastern corridor of the Klang Valley. Existing traffic levels in the Ring Road corridor lend support to opening year forecast traffic levels while moderate traffic growth potential is afforded by the service area’s economy and growth prospects.
Additional credit strengths include the allocation of construction risk to a capable contractor through a fixed-price, date-certain contract, and a financing structure that ensures that noteholders receive adequate protection. The project has received strong support from the federal government in the form of a grant. Further support for the project is also provided by project sponsors; via total equity funding of up to RM220 million by December 2003 as well as liquidity support post completion of the project on a joint and several basis. As at November 2003, all land have been acquired, thus, eliminating the site risk. Moderating the above strengths are the expected delay in construction of certain road sections and the commencement of Sg. Long toll; the uncertainties surrounding long-term traffic growth; and the toll sensitivity of road users to economic cycles.
Prior to its listing on the Main Board of the KLSE on 17 December 2003, Sunway Infrastructure Berhad (SIB) has acquired SILK’s (single purpose company formed for the purpose of implementing the concession) entire share capital. Sunway Holdings Incorporated Bhd (SunInc) which now holds 33.3% equity stake in SIB after the listing (50% prior listing) is also the holding company of the project’s turnkey contractor, Sunway Construction Berhad (SunCon), which will be fully owned by SunInc upon completion of its ongoing restructuring exercise.
Proceeds from the ABBA notes amounting to RM580 million, together with the RM220 million committed by SILK’s shareholders, are used to part finance land cost and the construction of the 37 km long ring road, whilst the RM450 million federal government grant is used to finance the balance of the project’s land cost and construction cost.
The three months gap between tolling date (August 2004) and scheduled completion date (April 2004) provides a timing buffer for SunCon to bring back the delayed section on schedule by mobilizing additional resources and putting in extended hours. Even if the delay is not remedied by August 2004, tolling operations of the other two tolls will not be affected as there is provision for sectional tolling in the CA. Additional timing buffer arises from the commencement of the actual notes redemption only in year 2007, three years after the scheduled opening of the Ring Road to accommodate the less onerous cash debt service burden in the early years of tolling; usually a period in respect of which traffic flows have not stabilized.
Using the traffic consultant’s base case traffic assumptions and the toll rate increments scheduled in the SCA, debt service coverage is expected to average 5.97 times with a minimum of 2.51 times in 2008. Sensitivity results show that with a 5 months’ delay in the opening of one toll or all the four tolls or a 15% reduction in revenue across the board for all the tolls, SILK’s cashflows still demonstrate an ability to adequately cover its debt service when due.
Additional credit strengths include the allocation of construction risk to a capable contractor through a fixed-price, date-certain contract, and a financing structure that ensures that noteholders receive adequate protection. The project has received strong support from the federal government in the form of a grant. Further support for the project is also provided by project sponsors; via total equity funding of up to RM220 million by December 2003 as well as liquidity support post completion of the project on a joint and several basis. As at November 2003, all land have been acquired, thus, eliminating the site risk. Moderating the above strengths are the expected delay in construction of certain road sections and the commencement of Sg. Long toll; the uncertainties surrounding long-term traffic growth; and the toll sensitivity of road users to economic cycles.
Prior to its listing on the Main Board of the KLSE on 17 December 2003, Sunway Infrastructure Berhad (SIB) has acquired SILK’s (single purpose company formed for the purpose of implementing the concession) entire share capital. Sunway Holdings Incorporated Bhd (SunInc) which now holds 33.3% equity stake in SIB after the listing (50% prior listing) is also the holding company of the project’s turnkey contractor, Sunway Construction Berhad (SunCon), which will be fully owned by SunInc upon completion of its ongoing restructuring exercise.
Proceeds from the ABBA notes amounting to RM580 million, together with the RM220 million committed by SILK’s shareholders, are used to part finance land cost and the construction of the 37 km long ring road, whilst the RM450 million federal government grant is used to finance the balance of the project’s land cost and construction cost.
The three months gap between tolling date (August 2004) and scheduled completion date (April 2004) provides a timing buffer for SunCon to bring back the delayed section on schedule by mobilizing additional resources and putting in extended hours. Even if the delay is not remedied by August 2004, tolling operations of the other two tolls will not be affected as there is provision for sectional tolling in the CA. Additional timing buffer arises from the commencement of the actual notes redemption only in year 2007, three years after the scheduled opening of the Ring Road to accommodate the less onerous cash debt service burden in the early years of tolling; usually a period in respect of which traffic flows have not stabilized.
Using the traffic consultant’s base case traffic assumptions and the toll rate increments scheduled in the SCA, debt service coverage is expected to average 5.97 times with a minimum of 2.51 times in 2008. Sensitivity results show that with a 5 months’ delay in the opening of one toll or all the four tolls or a 15% reduction in revenue across the board for all the tolls, SILK’s cashflows still demonstrate an ability to adequately cover its debt service when due.