MARC has affirmed its AA_IS rating on ANIH Berhad's (ANIH) RM2.5 billion Senior Sukuk Musharakah Programme with a stable outlook. ANIH is the concessionaire of Kuala Lumpur-Karak Highway (KL-Karak) and Phase 1 of East Coast Expressway (ECE1) until 2032 as well as Kuala Lumpur-Seremban Expressway (KL-Seremban) until 2018.

The rating considers the stable traffic performance on ANIH’s concession assets which supports sufficient cash flow generation to meet the concessionaire’s finance service obligations. The rating also benefits from the subordinated and equity-like features of ANIH’s RM620 million Junior Bonds that allow it to withstand moderate operational underperformance. The rating is constrained by ANIH’s highly leveraged capital structure and its heavy reliance on toll rate hikes to maintain its financial metrics.

For financial year ended March 31, 2017 (FY2017), the overall traffic volume of the highways was within traffic forecast as per a traffic consultant study carried out in 2011. The traffic volume was supported by a 2.7% growth on KL-Karak to 119,774 passenger car units per day (pcu/day). Traffic on the highway was further bolstered by the opening of the Genting Highlands Premium Outlets in June 2017 and registered a 6.0% growth y-o-y in the first quarter of FY2018 (1QFY2018). On ECE1 and KL-Seremban, traffic volume was generally flat in FY2017. The subdued performance on ECE1 was partly attributed to commencement of tolling in July 2016 on ECE2, which is directly connected to ECE1. In FY2017, traffic volume on ECE1 and KL-Seremban stood at 22,334 pcu/km/day and 139,744 pcu/day respectively.

ANIH’s toll revenue increased marginally y-o-y to RM466.8 million and remains comparable to FY2017’s projected revenue of RM450.5 million. This notwithstanding, the concessionaire registered losses before tax of RM77.1 million on the back of the adoption of new accounting standards which resulted in higher amortisation charges of RM191.6 million (FY2016: RM101.7 million). The company’s operating cash flow rose 19.2% y-o-y to RM265.1 million, resulting in an increased cash balance to RM379.8 million as at end-FY2017. Its debt servicing capacity remains adequate with a forward-looking finance service coverage ratio (FSCR) of 2.81 times in FY2017 vis-à-vis the covenanted FSCR of 1.75 times.

Under the base case cash flow projections, ANIH’s average pre-distribution FSCR (with cash balance) is envisaged to remain resilient at 3.82 times. MARC’s sensitivity analysis reveals that ANIH’s cash flows can withstand moderate traffic underperformance provided that the toll rate hikes are implemented as per the concession agreement. Additionally, the coupon deferral feature of ANIH’s Junior Bonds that allows any unpaid coupons to be accumulated and paid on the maturity date of the respective tranche of the bonds if the minimum post-distribution FSCR is not met, provides some buffer should traffic performance be significantly below projections. Given ANIH’s highways’ mature traffic profile and its long operating history, the risk of prolonged significant traffic underperformance is deemed low.

The outlook incorporates MARC’s expectations that ANIH would maintain its credit profile supported by stable traffic performance from its toll concessions. The rating and/or outlook could face downward pressure if ANIH’s FSCR and liquidity buffer deteriorate due to delays in toll compensation receipts in lieu of toll rate hikes.

Contacts:
Adib Asilah, +603-2717 2943/ asilah@marc.com.my;
David Lee, +603-2717 2955/ david@marc.com.my.