MARC is issuing this update on Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd (Kesturi) following a revised construction completion date to June 30, 2017 from February 12, 2017 for the 16-km Duta-Ulu Kelang Expressway (DUKE) Phase-2. Kesturi has received approval from the Malaysian Highway Authority on a further extension of time (EOT) to October 2, 2017 from December 15, 2016. The initial EOT was from December 15, 2016 to February 12, 2017.

MARC views that no rating action is warranted at this juncture as a result of the construction completion delay. This is mainly due to the fact that any cash flow mismatches arising from the delay is cushioned by the cash flow contribution from the existing DUKE Phase-1 and two-year gap before the first principal repayment of Kesturi’s sukuk due in December 2019. In addition, Kesturi’s cash and bank balances of RM269 million as at March 31, 2017 provides sufficient coverage for the remaining unsettled engineering, procurement and construction sum of RM106 million and next two semi-annual profit payments of RM55 million each. MARC also notes that the latest EOT helps preserve project coverage as Kesturi is exempted from liquidated ascertained damages penalty of RM10,000 per day for the non-completion of work before October 2, 2017.

Notwithstanding the aforementioned factors, MARC remains cautious that the completion delay may potentially widen the actual forecast traffic variance on DUKE Phase-1 given that DUKE Phase-2 will contribute to the growth of DUKE Phase-1. DUKE Phase-1’s average daily traffic (ADT) for the first seven months of the financial year ended June 30, 2017 stood at 128,070 vehicles per day against the projected ADT of 150,034 vehicles per day.

MARC will continue to monitor the progress of DUKE Phase-2 closely and take necessary rating action should the project encounter further delay beyond the revised completion date which would result in a weakening of Kesturi’s credit metrics. As at March 25, 2017, the physical progress of DUKE Phase-2 stood at 94.8%. Kesturi’s RM2.3 billion Sukuk Musharakah and RM180 million Redeemable Secured Junior Bonds are currently rated AA_-IS and A_- respectively with a stable outlook.

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