MARC has assigned a rating of A+ID (Islamic Debt) to Zecon Toll Concessionaire Sdn Bhd’s (“ZTC”) proposed issuance of RM60 million Bai-Bithaman Ajil Islamic Debt Securities (“BaIDS”). The rating reflects the strategic importance of the Tun Salahuddin Bridge (“the Bridge”) as an integral part of the Sarawak Government’s infrastructure development programme to provide more alternative routes to cater for the increasing number of motorised vehicles in the City and to mitigate traffic congestion on existing roads.  Moderating the rating is the exposure to traffic risk and the pace of the mixed development projects leading to the Bridge.

ZTC is the holder of a 33-year toll concession for 339-metre Tun Salahuddin Bridge over Sungai Sarawak, connecting the northern and southern parts of Kuching City. The construction of the Bridge was completed in September 2003 and had been opened for tolling in October 2003.

The Concession Agreement (“CA”) between the Sarawak State Government (Government) and ZTC provides that the Government shall compensate ZTC with concession land, should the annual traffic volume fall below the forecasted volume as set out in the CA. The CA also protects the bondholders should the concession be terminated by the Government or ZTC whereby the Government shall pay the lenders the amount owing to them within six months after the termination date.

Actual Average Daily Traffic (“ADT”) crossing the bridge in year 2004, the first full year of operation, stood at 9,764 vehicles. Based on the latest traffic study report conducted in March 2006, the ADT for year 2005 increased significantly to 16,926 vehicles; a 73.4% growth compared to the ADT in 2004. The toll revenue has also increased by 39.7% to RM7.1 million in year 2005. The growth in traffic volume has been driven by traffic diversion from the existing congested links between the northern and southern banks, such as the Satok Bridge and also Jalan Isthmus (Second Causeway) which connects the industrial areas on the east of Kuching City, as well as the opening of the motorcycle lane in October 2004. 

The outlook on traffic volume is dependent on the ongoing developments leading to the Bridge. The developments include new residential and commercial zones at Pending and an expanded administrative centre on the opposite bank. 

The base case financial projections depict robust cashflow despite a conservative assumed average annual traffic growth of 5% per annum.  By varying the magnitude of the toll hike and lengthening the interval for the increase, the projection shows thinning cashflow coverages but above the covenanted Finance Service Cover Ratio of 1.25 times throughout the tenure of the BaIDS.