Wednesday, Jul 04, 2001
Malaysian Rating Corporation Berhad (MARC) has assigned a rating of AA-ID (Double A minus, Islamic Debt Security) to MTD Prime Sdn Bhd’s (MTD Prime) RM250 million Al-Bai Bithaman Ajil Facility.
The rating reflects the completed status of the Highway with no construction risk; the government guaranteed minimum traffic growth and toll rates; good actual traffic performance; and the company’s profitable record. A moderating factor is the presently high debt leverage; typical of a company in the infrastructure sector.
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. 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.
MTD Prime had obtained a RM127 million, 6% government support loan for the purpose of financing the construction works. The principal repayment of the loan will commence in Nov 2007, that is after the full repayment of the ABBA Facility.
The minimum traffic volume and toll rates are guaranteed by the government under the Concession Documents. The guaranteed minimum traffic growth is 5% per annum based on the 1993 traffic volume; termed as the Support Traffic Volume (STV). MTD Prime will be compensated by the government if the actual traffic volume falls below the STV. The minimum traffic guarantee provides support to the continued growth in traffic and reduces the Highway’s exposure to fluctuations in the level of discretionary and recreational trips as well as economic conditions.
Toll rates for the entire concession period have been agreed with the government. Where actual toll rates imposed are lower than the agreed rates, MTD Prime will be compensated for the reduction in toll collections.
Upgrading works on the Highway were completed in May 1998. The reconstructed Genting Slip Road was officially opened to the public in December 1999. MTD Construction Sdn Bhd was the turnkey contractor for both the Highway and Genting Slip Road. Toll operations have been contracted out to Alloy Toll Management Sdn Bhd., while maintenance services are carried out by Alloy Maintenance Engineering Sdn Bhd.
Actual traffic figures were consistently above the support traffic level over the past six years. The 1998 economic recession saw a decline in traffic growth to 1.3% (1997 : 7.8%, 1996 : 11.6%). Nevertheless, the traffic volume in absolute terms (17.9 million pcu) was still above the corresponding STV of 16.5 million pcu. Traffic growth recovered to 7.1% in 1999 and 11.8% in 2000. MTD Prime projects traffic to grow at 6% per annum until the Highway reaches its full capacity.
Earnings and cash flow protection measures have been on an increasing trend over the years, underpinned by the growth in revenue. Driving the revenue base are increases in both traffic volume and toll rates. Coupled with the benefit of lower financing charges from the refinancing exercise, financing cost coverage ratios are expected to strengthen further in the near to medium term. Under MARC’s cash flow stress test, where revenue is based on the minimum traffic volume (STV), debt service is still adequately met with the debt service coverage ratio and cash flow from operations financing cost coverage averaging 4.68x and 5.71x respectively. The accumulation of retained earnings has helped to lower debt leverage to 1.88x from its peak of 2.62x in FY98. Debt leverage is expected to dip below 1x in the medium term, partly due to the scheduled semi-annual repayment of the ABBA notes. The progressive reduction of debt over the life of the ABBA Facility also mitigates refinancing risk at the maturity of the facility.
The rating reflects the completed status of the Highway with no construction risk; the government guaranteed minimum traffic growth and toll rates; good actual traffic performance; and the company’s profitable record. A moderating factor is the presently high debt leverage; typical of a company in the infrastructure sector.
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. 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.
MTD Prime had obtained a RM127 million, 6% government support loan for the purpose of financing the construction works. The principal repayment of the loan will commence in Nov 2007, that is after the full repayment of the ABBA Facility.
The minimum traffic volume and toll rates are guaranteed by the government under the Concession Documents. The guaranteed minimum traffic growth is 5% per annum based on the 1993 traffic volume; termed as the Support Traffic Volume (STV). MTD Prime will be compensated by the government if the actual traffic volume falls below the STV. The minimum traffic guarantee provides support to the continued growth in traffic and reduces the Highway’s exposure to fluctuations in the level of discretionary and recreational trips as well as economic conditions.
Toll rates for the entire concession period have been agreed with the government. Where actual toll rates imposed are lower than the agreed rates, MTD Prime will be compensated for the reduction in toll collections.
Upgrading works on the Highway were completed in May 1998. The reconstructed Genting Slip Road was officially opened to the public in December 1999. MTD Construction Sdn Bhd was the turnkey contractor for both the Highway and Genting Slip Road. Toll operations have been contracted out to Alloy Toll Management Sdn Bhd., while maintenance services are carried out by Alloy Maintenance Engineering Sdn Bhd.
Actual traffic figures were consistently above the support traffic level over the past six years. The 1998 economic recession saw a decline in traffic growth to 1.3% (1997 : 7.8%, 1996 : 11.6%). Nevertheless, the traffic volume in absolute terms (17.9 million pcu) was still above the corresponding STV of 16.5 million pcu. Traffic growth recovered to 7.1% in 1999 and 11.8% in 2000. MTD Prime projects traffic to grow at 6% per annum until the Highway reaches its full capacity.
Earnings and cash flow protection measures have been on an increasing trend over the years, underpinned by the growth in revenue. Driving the revenue base are increases in both traffic volume and toll rates. Coupled with the benefit of lower financing charges from the refinancing exercise, financing cost coverage ratios are expected to strengthen further in the near to medium term. Under MARC’s cash flow stress test, where revenue is based on the minimum traffic volume (STV), debt service is still adequately met with the debt service coverage ratio and cash flow from operations financing cost coverage averaging 4.68x and 5.71x respectively. The accumulation of retained earnings has helped to lower debt leverage to 1.88x from its peak of 2.62x in FY98. Debt leverage is expected to dip below 1x in the medium term, partly due to the scheduled semi-annual repayment of the ABBA notes. The progressive reduction of debt over the life of the ABBA Facility also mitigates refinancing risk at the maturity of the facility.