Monday, Nov 18, 2002
The reaffirmation of MTD Prime Sdn Bhd’s Islamic debt rating of AA –ID (Double-A Minus, Islamic Debt) reflects the completed status of the Highway with no construction risk; good actual traffic performance which is above the government guaranteed minimum traffic growth; and the company’s improving financial strength.
MTD Prime is a single purpose company created specifically to upgrade, operate and maintain the 60 km KL-Karak Highway. The Concession Agreement was originally for a term of 27 years but this was subsequently extended for a further period of five years as consideration for the company undertaking the reconstruction of the Genting Slip Road that collapsed in June 1995. In July 2002, the government revised the toll rates at both the Bentong and Gombak toll plazas. The new toll rates, which were effective from 1 Jan 2002 but only recently implemented by MTD Prime in Aug 2002, are lower than the rates agreed upon under the Original and Supplemental Concession Agreements. As compensation for the expected loss of earnings for the remainder of the concession period, the government has agreed to: extend the concession period for a further six years from 2026 to 2032; waive the government support loan amounting to RM183.2 million as at end December 2001; award the right of toll collection and maintenance of the East Coast Expressway Phase 1 for 28 years from the year 2005; and pay cash compensation totalling RM97.1 million.
The minimum traffic volume and toll rates are guaranteed by the government under the Concession Documents. The guaranteed minimum traffic growth of 5% per annum (based on the 1993 traffic volume); termed as the Support Traffic Volume (STV), reduces the highway’s exposure to fluctuation in the level of discretionary and recreational trips as well as economic conditions. MTD Prime will be compensated by the government if the actual traffic volume falls below the STV. Over the past six years the actual traffic figures were consistently above the STV figures. In 2001, traffic grew at an encouraging rate of 9.1%, following a double digit growth rate of 11.9% in year 2000, exceeding the projected growth rate of 6% per annum. Driven by the increased traffic volume, MTD Prime’s revenue and pre-tax profit continued on an upward trend, reaching RM82.9 million and RM58.8 million respectively as at end Mar 2002. Future toll revenue is, however, expected to be affected by the recent revision in the toll rates. MTD Prime has projected a steady traffic growth of six per cent per annum over the period of the ABBA facility.
The traffic growth protection is available only up to July 2006; a year before the maturity of the ABBA facility (July 2007). Exposure to traffic growth risk during the last 12 months of the facility is mitigated as the balance of the primary notes by then will be a manageable sum of RM70 million. The scheduled semi-annual payment of the ABBA primary notes also mitigates refinancing risk at the maturity of the facility.
Earnings and cash flow protection measures have been on an uptrend over the years, underpinned by the growth in revenue. Operating profit margin averaged 66% over the past five fiscal years. Maintenance cost is projected to account for slightly more than half of total operating expenditure over the remainder of the financing period. MTD Prime’s debt servicing capacity is expected to improve after the receipt of the cash compensation sums from the government. And the waiver of the government’s support loan will relieve the company’s cash flow from the servicing obligations under the said facility. Under MARC’s stress test of MTD Prime’s projected cash flow; whereby traffic volumes for the period 2002 to 2007 have been set at the STV levels; MTD Prime’s cash flow was found to remain strong. Debt service coverage ratio is expected to average around 5 times over the said period. With the progressive reduction of the debt coupled with the accumulation of retained earnings, the company’s debt leverage will continue to trend downwards to below one time towards the final maturity of the facility.
MTD Prime is a single purpose company created specifically to upgrade, operate and maintain the 60 km KL-Karak Highway. The Concession Agreement was originally for a term of 27 years but this was subsequently extended for a further period of five years as consideration for the company undertaking the reconstruction of the Genting Slip Road that collapsed in June 1995. In July 2002, the government revised the toll rates at both the Bentong and Gombak toll plazas. The new toll rates, which were effective from 1 Jan 2002 but only recently implemented by MTD Prime in Aug 2002, are lower than the rates agreed upon under the Original and Supplemental Concession Agreements. As compensation for the expected loss of earnings for the remainder of the concession period, the government has agreed to: extend the concession period for a further six years from 2026 to 2032; waive the government support loan amounting to RM183.2 million as at end December 2001; award the right of toll collection and maintenance of the East Coast Expressway Phase 1 for 28 years from the year 2005; and pay cash compensation totalling RM97.1 million.
The minimum traffic volume and toll rates are guaranteed by the government under the Concession Documents. The guaranteed minimum traffic growth of 5% per annum (based on the 1993 traffic volume); termed as the Support Traffic Volume (STV), reduces the highway’s exposure to fluctuation in the level of discretionary and recreational trips as well as economic conditions. MTD Prime will be compensated by the government if the actual traffic volume falls below the STV. Over the past six years the actual traffic figures were consistently above the STV figures. In 2001, traffic grew at an encouraging rate of 9.1%, following a double digit growth rate of 11.9% in year 2000, exceeding the projected growth rate of 6% per annum. Driven by the increased traffic volume, MTD Prime’s revenue and pre-tax profit continued on an upward trend, reaching RM82.9 million and RM58.8 million respectively as at end Mar 2002. Future toll revenue is, however, expected to be affected by the recent revision in the toll rates. MTD Prime has projected a steady traffic growth of six per cent per annum over the period of the ABBA facility.
The traffic growth protection is available only up to July 2006; a year before the maturity of the ABBA facility (July 2007). Exposure to traffic growth risk during the last 12 months of the facility is mitigated as the balance of the primary notes by then will be a manageable sum of RM70 million. The scheduled semi-annual payment of the ABBA primary notes also mitigates refinancing risk at the maturity of the facility.
Earnings and cash flow protection measures have been on an uptrend over the years, underpinned by the growth in revenue. Operating profit margin averaged 66% over the past five fiscal years. Maintenance cost is projected to account for slightly more than half of total operating expenditure over the remainder of the financing period. MTD Prime’s debt servicing capacity is expected to improve after the receipt of the cash compensation sums from the government. And the waiver of the government’s support loan will relieve the company’s cash flow from the servicing obligations under the said facility. Under MARC’s stress test of MTD Prime’s projected cash flow; whereby traffic volumes for the period 2002 to 2007 have been set at the STV levels; MTD Prime’s cash flow was found to remain strong. Debt service coverage ratio is expected to average around 5 times over the said period. With the progressive reduction of the debt coupled with the accumulation of retained earnings, the company’s debt leverage will continue to trend downwards to below one time towards the final maturity of the facility.