Friday, Sep 09, 2005
MARC has downgraded the long-term rating of Sistem Lingkaran-Lebuhraya Kajang Sdn Bhd’s (SILK) Al-Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS) to BB-ID with negative outlook. The downgrade is premised on the weak traffic volume at all the four tolls, which have been consistently and significantly below the initial traffic projections; the weak traffic forecasts (latest traffic study dated August 2005 by Perunding Trafik Klasik Sdn Bhd (PTK)); and the possible uncertainty of enforcing the undertaking provided by Sunway Holdings Incorporated Berhad (SunInc). Going forward, given the poor projected toll revenue, SILK’s cashflow coverage is projected to be insufficient to redeem the BaIDS. Although the first redemption will be in August 2007, SILK is required to deposit the first 50% of the projected debt service (RM75 million) into the Debt Service Reserve Account (DSRA) in August 2006. The current cashflow position permits SILK to fulfil this initial requirement, however, additional equity/loan financing or refinancing/restructuring of the current BaIDS is necessary for SILK to fulfil its remaining debt obligations.
The undertaking provided by SunInc is to ensure that SILK maintains a Debt Service Cover Ratio of 1.25 times and that the required balances are in the DSRA. The enforceability of this undertaking is in doubt since SILK is a Related Party of SunInc; and hence, SunInc might be obliged to first seek shareholders’ approval before providing any financial assistance pursuant to the undertaking.
The 37-km long Ring Road is located in Kajang and circumscribes the township of Kajang, facilitating the bypass route to Cheras and Bangi. It was fully completed in December 2004 and three tolls, Bukit Kajang, Sungai Ramal and Sungai Balak have been opened for tolling since July 2004 whilst the Sungai Long toll commenced operations in January 2005. The actual traffic volume was well below projections, where on average, only 28% of the projected volume travelled on the Ring Road between August 2004 and May 2005.
Due to the significant deviation between the traffic volume projected by the previous consultants and the actual traffic registered on the Ring Road since tolling, SILK has engaged another traffic consultant, PTK to review the existing pattern and forecast future travel demand along the highway. PTK has identified a few problems faced by SILK, including the high number of alternative non-tolled routes; the design of the Ring Road as a bypass but higher volumes of traffic actually moves towards the town area; the slower than expected proposed developments surrounding the Ring Road and the location of the toll booths which are not located on stretches with the highest volumes.
Based on PTK’s base case traffic assumptions and the toll rate increments scheduled in the Supplemental Concession Agreement, the company’s funds are insufficient to cover the BaIDS redemption. Also, as SILK is expected to carry the accumulated losses throughout the tenure of the BaIDS, its debt leverage position will gradually increase in the absence of additional equity funding. MARC will continue to monitor developments surrounding the company and assess the impact of such developments on the company’s rating.
The undertaking provided by SunInc is to ensure that SILK maintains a Debt Service Cover Ratio of 1.25 times and that the required balances are in the DSRA. The enforceability of this undertaking is in doubt since SILK is a Related Party of SunInc; and hence, SunInc might be obliged to first seek shareholders’ approval before providing any financial assistance pursuant to the undertaking.
The 37-km long Ring Road is located in Kajang and circumscribes the township of Kajang, facilitating the bypass route to Cheras and Bangi. It was fully completed in December 2004 and three tolls, Bukit Kajang, Sungai Ramal and Sungai Balak have been opened for tolling since July 2004 whilst the Sungai Long toll commenced operations in January 2005. The actual traffic volume was well below projections, where on average, only 28% of the projected volume travelled on the Ring Road between August 2004 and May 2005.
Due to the significant deviation between the traffic volume projected by the previous consultants and the actual traffic registered on the Ring Road since tolling, SILK has engaged another traffic consultant, PTK to review the existing pattern and forecast future travel demand along the highway. PTK has identified a few problems faced by SILK, including the high number of alternative non-tolled routes; the design of the Ring Road as a bypass but higher volumes of traffic actually moves towards the town area; the slower than expected proposed developments surrounding the Ring Road and the location of the toll booths which are not located on stretches with the highest volumes.
Based on PTK’s base case traffic assumptions and the toll rate increments scheduled in the Supplemental Concession Agreement, the company’s funds are insufficient to cover the BaIDS redemption. Also, as SILK is expected to carry the accumulated losses throughout the tenure of the BaIDS, its debt leverage position will gradually increase in the absence of additional equity funding. MARC will continue to monitor developments surrounding the company and assess the impact of such developments on the company’s rating.