MARC has affirmed its AA_IS rating on toll road concessionaire ANIH Berhad's (ANIH) RM2.5 billion Senior Sukuk Musharakah Programme with a stable outlook. The rating is premised on ANIH’s overall stable traffic performance from a portfolio of matured toll road concessions from which cash flow generation remains sufficient to meet its financial obligations. The rating is also supported by the subordinated and equity-like RM620.0 million Junior Bonds that allow ANIH to withstand stresses. The key rating constrains are ANIH’s leverage position and the vulnerability of its cash flows to future toll hikes.

ANIH’s toll road concession portfolio consists of the Kuala Lumpur-Karak Highway (KL-Karak), Phase 1 of the East Coast Expressway (ECE1) and the Kuala Lumpur-Seremban Expressway (KL-Seremban); traffic volume on the KL-Karak (open toll system) and the ECE1 (closed toll system) improved by 1.2% y-o-y and 3.2% y-o-y to 113,159 passenger car units per day (pcu/day) and 20,876 pcu/km/day respectively for the financial year ended March 31, 2015 (FY2015). MARC observes that traffic volume on the KL-Karak was 2.4% below traffic projections in FY2015. This is attributed to fewer visitors travelling on the KL-Karak to Genting Highlands following the closure of an outdoor theme park. This weaker traffic performance, however, was moderated by the better-than-expected traffic volume on the ECE1 despite a seven-day closure of two road stretches due to flooding in December 2014. The KL-Seremban’s traffic volume improved marginally by 1.9% y-o-y in FY2015 but the impact was marginal on ANIH’s debt service capability given its small contribution to the group.

MARC remains concerned on the cash flow impact on ANIH from the non-implementation of toll hikes on the KL-Karak and the ECE1 which were scheduled on January 1, 2015. In lieu of the toll hikes, ANIH has submitted compensation claims to the Malaysian Highway Authority in January and July 2015 and is currently waiting for the government’s approval on the compensations. While ANIH has available funds in the designated accounts totalling RM186.7 million as at June 30, 2015 to meet its forthcoming semi-annual profit and sukuk repayment of RM66.3 million and RM80.0 million respectively, the timeliness of cash compensations remains crucial for ANIH’s future obligations under the rated sukuk programme. The financing obligations will increase steadily from RM100 million in FY2017 to RM230 million at the end of the tenure in FY2030.

For FY2015, ANIH generated revenue and cash flow from operations (CFO) of RM374.0 million and RM235.1 million respectively but pre-tax loss widened to RM51.2 million as a result of higher provisions for heavy repairs on toll concessions in FY2015 (FY2014: pre-tax loss of RM15.7 million). Consequently, ANIH’s shareholders’ funds declined to RM181.0 million, leading to an increase in the debt-to-equity ratio to 3.06 times from 2.95 times. While the company’s CFO in FY2015 was 3.8% below the projected CFO of RM244.4 million, ANIH’s free cash flow (FCF) exceeded the projected FCF of RM206.3 million by 10.9% as a result of lower-than-expected capital expenditure. MARC notes that the better-than-expected finance service cover ratio (FSCR) of 2.68 times (projected FSCR: 2.51 times) remained comfortably above the covenanted FSCR of 1.75 times.

The updated traffic projections, which assume the implementation of toll hikes on January 1, 2016, afford ANIH a higher margin of traffic underperformance with a base case minimum FSCR of 3.04 times (original projections: 2.51 times). The sensitivity analysis indicates a moderate degree of resilience with respect to FSCR levels under severe traffic underperformance. MARC deems the risk of negative traffic growth as low, in light of the highways’ stable and matured traffic profile as well as their long operating track records. However, as toll hikes have not been implemented, and if no cash compensations are received in lieu, ANIH would breach its FSCR covenant of 1.75 times by FY2020 and default on the sukuk by FY2024.

The stable outlook is premised on MARC’s expectations that traffic performance would be largely in line with projections and ANIH would maintain its credit profile. The rating and/or outlook could face downward pressure if ANIH’s FSCR deteriorates as a result of untimely toll adjustments and/or, in lieu of toll hikes, cash compensations are not received within nine months.

Contacts:
Ng Chun Kean, +603-2082 2230/ chunkean@marc.com.my;
David Lee, +603-2082 2255/ david@marc.com.my