Tuesday, Nov 02, 2004
MARC has reaffirmed the long-term rating of Sistem Lingkaran-Lebuhraya Kajang Sdn Bhd’s (SILK) Al-Bai’ Bithaman Ajil debt securities. The rating reflects the perceived strong demand for the Kajang Traffic Dispersal Ring Road to relieve severe traffic congestion in the Kajang District 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 economic and growth prospects.
The project has received strong support from the federal government in the form of grant and from project sponsors via total equity funding of RM220 million. The latter also provides liquidity support post completion of the project on a joint and several basis. As at todate, all land have been acquired thus, eliminating the site risk. Moderating the above strengths are delays in the construction of certain road sections (section 2B and part of section 2C) due to the additional reinforcement work advised by Lembaga Lebuhraya Malaysia, leading to the late commencement of Sg. Long toll; the uncertainties surrounding long-term traffic growth and the toll sensitivity of road users to economic cycles.
SILK is currently waiting for the Government’s approval on the waiver of liquidated damages payable by SILK. A back-to-back liquidated damages arrangement with the turnkey contractor helps to mitigate the strain on SILK’s cashflow resulting from liquidated damages payment, if any.
Sunway Infrastructure Berhad (SIB), listed on the Bursa Malaysia since December 2003, owns SILK’s entire share capital. Sunway Holdings Incorporated Bhd (SunInc), which now holds 34.49% equity stake in SIB, also has 100% stake in the project’s turnkey contractor, Sunway Construction Berhad (SunCon).
Proceeds from the ABBA notes amounting to RM580 million, together with the RM220 million committed by SILK’s shareholders, were used to part finance land cost and the construction of the 37-km long ring road, whilst the RM450 million federal government grant was used to finance the balance of the project’s land and construction costs.
The Kajang Ring Road was opened to the public on 15 June 2004 whilst tolling for Sungai Ramal, Bukit Kajang and Sungai Balak tolls commenced on 15 July 2004, earlier than the targeted tolling date of August 1, 2004. MARC will closely monitor the progress of the delayed sections which affected the opening of the fourth toll at Sg. Long. This delay is expected to be remedied by end of year 2004 to enable the opening of Sg. Long toll. SILK does not expect the delay to have any material impact on its revenue as the Sg. Long toll plaza is not expected to contribute significantly to the toll revenue during the first few months of operations. Additional timing buffer exists with actual redemption of notes commencing only in year 2007, three years after the scheduled opening of the Ring Road.
Based upon the traffic consultant’s base case traffic assumptions and the toll rate increments scheduled in the Supplemental Concession Agreement, SILK’s cashflow appears to be sufficient to meet payment obligations under the ABBA. Updates on the cashflows will be incorporated next year to reflect the actual traffic numbers since the opening of the toll road. Sensitivity results show that a 6-month delay in the opening of the Sg. Long toll or a 15% reduction in revenue across the years for all the tolls will not impair the repayment capability of SILK. Monies in the Debt Service Reserve Account and shareholders’ undertaking to provide liquidity support ensure SILK’s ability to adequately cover its debt service when due.
The project has received strong support from the federal government in the form of grant and from project sponsors via total equity funding of RM220 million. The latter also provides liquidity support post completion of the project on a joint and several basis. As at todate, all land have been acquired thus, eliminating the site risk. Moderating the above strengths are delays in the construction of certain road sections (section 2B and part of section 2C) due to the additional reinforcement work advised by Lembaga Lebuhraya Malaysia, leading to the late commencement of Sg. Long toll; the uncertainties surrounding long-term traffic growth and the toll sensitivity of road users to economic cycles.
SILK is currently waiting for the Government’s approval on the waiver of liquidated damages payable by SILK. A back-to-back liquidated damages arrangement with the turnkey contractor helps to mitigate the strain on SILK’s cashflow resulting from liquidated damages payment, if any.
Sunway Infrastructure Berhad (SIB), listed on the Bursa Malaysia since December 2003, owns SILK’s entire share capital. Sunway Holdings Incorporated Bhd (SunInc), which now holds 34.49% equity stake in SIB, also has 100% stake in the project’s turnkey contractor, Sunway Construction Berhad (SunCon).
Proceeds from the ABBA notes amounting to RM580 million, together with the RM220 million committed by SILK’s shareholders, were used to part finance land cost and the construction of the 37-km long ring road, whilst the RM450 million federal government grant was used to finance the balance of the project’s land and construction costs.
The Kajang Ring Road was opened to the public on 15 June 2004 whilst tolling for Sungai Ramal, Bukit Kajang and Sungai Balak tolls commenced on 15 July 2004, earlier than the targeted tolling date of August 1, 2004. MARC will closely monitor the progress of the delayed sections which affected the opening of the fourth toll at Sg. Long. This delay is expected to be remedied by end of year 2004 to enable the opening of Sg. Long toll. SILK does not expect the delay to have any material impact on its revenue as the Sg. Long toll plaza is not expected to contribute significantly to the toll revenue during the first few months of operations. Additional timing buffer exists with actual redemption of notes commencing only in year 2007, three years after the scheduled opening of the Ring Road.
Based upon the traffic consultant’s base case traffic assumptions and the toll rate increments scheduled in the Supplemental Concession Agreement, SILK’s cashflow appears to be sufficient to meet payment obligations under the ABBA. Updates on the cashflows will be incorporated next year to reflect the actual traffic numbers since the opening of the toll road. Sensitivity results show that a 6-month delay in the opening of the Sg. Long toll or a 15% reduction in revenue across the years for all the tolls will not impair the repayment capability of SILK. Monies in the Debt Service Reserve Account and shareholders’ undertaking to provide liquidity support ensure SILK’s ability to adequately cover its debt service when due.