The affirmation of the AID 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, Sungei Long, Semenyih, Bangi, Kajang and Serdang in the south-eastern corridor of the Klang Valley. The Ring Road, whose main function is for commuter use, will form an integral component of the overall strategic road network 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. Tangible support for the project is also provided by project sponsors by way of an undertaking to contribute equity and/or quasi-equity funding of up to RM220 million no later than 30th December 2003 and more importantly, to provide liquidity support post completion of the project on a joint and several basis. Site risk has reduced substantially since 90% of the land has already been acquired. Moderating the above strengths are the uncertainties surrounding long-term traffic growth, the toll sensitivity of road users to economic cycles, and,toll acceptance by the commuters.

The Kajang Traffic Dispersal Ring Road has been privatized as a 36-year concession to SILK, a special purpose company. It was acquired by Sunway Infrastructure Berhad (SIB) in September 2002 en route its imminent listing on the Main Board of the KLSE. Sunway Holdings Incorporated Bhd (SunInc) which holds 50% equity stake in SIB prior to the listing, is also the holding company of the project’s turnkey contractor, Sunway Construction Berhad (SunCon). MARC believes that SILK’s shareholders individually and collectively possess a substantial financial and strategic interest to see the project successfully through the construction and operation phases.

Proceeds from the ABBA notes amounting to RM580 million, together with the RM220 million committed by SILK’s shareholders, will be used to part finance land costs and the construction of the 37-km long Ring Road. The Supplemental Concession Agreement signed on August 1, 2001 involves the federal government providing a grant of up to RM450 million to part finance the balance of the project’s land cost and construction costs. Actual redemption of the notes commences in year 2007, an estimated three years after the scheduled opening of the Ring Road. MARC views this accretion feature of the securities positively in that it accommodates a less onerous cash debt service burden in the early years of tolling, usually a period in respect of which traffic flows have not stabilized. The 20-year tenure of the facility and its amortizing structure alleviates refinancing concerns typical of shorter debt maturities and bullet structures. Upon completion of construction, SILK will be required to fund a debt service reserve account (DSRA) for an amount equivalent to 50% of the first projected debt service payment at least 12 months before the payment date. Thereafter, SILK is required to maintain a debt service balance equal to 50% of the next scheduled payment on the notes at least 6 months prior to the respective debt service dates.

The base case scenario projects traffic growth exceeding 10% in the first four years followed by moderate growth rates of 3% to 4% thereafter. Revenue growth also assumes increments every five years in the toll rate until 2019, and is fixed thereafter for the remaining life of the concession. Under these base case assumptions, debt service coverage is expected to average 7.91x with the lowest coverage of 2.14x in 2008. Projected net toll revenues demonstrate an ability to withstand most stress scenarios and still adequately cover debt service when due. Furthermore, the shareholders of SILK have undertaken to support SILK’s cash flow to maintain a 1.25x DSCR in the post completion phase during the tenure of the facility.