MARC has affirmed its AA_IS rating on ANIH Berhad's RM2.5 billion Senior Sukuk Musharakah Programme. Concurrently, the rating outlook has been revised to stable from negative. ANIH is the concessionaire of Kuala Lumpur-Karak Highway (KL-Karak) and Phase 1 of East Coast Expressway (ECE1) until 2032. Its toll concession for Kuala Lumpur-Seremban Expressway (KL-Seremban) ended on May 31, 2018.

The outlook revision to stable reflects the steady traffic growth on KL-Karak and ECE1 that would remain supportive of the company’s cash flow generation to meet the concessionaire’s finance service obligations. The rating agency views ANIH to be in a better position than other similar toll concessionaires to weather any shifts in the prevailing regulatory environment for the domestic toll industry in the intermediate term. While the government recently announced compensation in lieu of deferred toll hikes in 2019, MARC views this as an interim measure. The rating agency expects ANIH to continue to demonstrate a commendable liquidity profile by maintaining healthy cash balance levels. 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.

For financial year ended March 31, 2018 (FY2018), KL-Karak’s traffic volume grew 3.4% y-o-y to 123,845 passenger car units per day (pcu/day) and ECE1 by 1.9% y-o-y growth to 22,766 pcu/km/day. The sustained growth in traffic volume on the two highways during 8MFY2019 is mainly attributed to higher traffic leading up to the Hari Raya season and year-end holidays. Meanwhile, traffic volume on KL-Seremban declined in FY2018 and 1QFY2019 due to bottlenecks caused by ongoing construction on the highway. The expiry of the KL-Seremban concession in May 2018 has had some impact on ANIH’s cash flows given that the toll contribution from this highway had averaged 10.4% of total tolling revenue for the past five years.

For FY2018, toll revenue rose 2.6% y-o-y to RM431.8 million in line with overall traffic volume growth. However, due to the realisation of lower government compensation amounting to RM33.1 million vis-à-vis RM45.8 million in FY2017, overall revenue was lower. Operating cash flow was RM260.9 million and cash balances stood at RM427.4 million in FY2018 (FY2017: RM265.1 million; RM379.8 million).  ANIH’s forward-looking finance service cover ratio (FSCR) for FY2018 stood at 3.32x, providing a comfortable margin against the covenanted FSCR of 1.75x. Meanwhile, the debt-to-equity ratio declined to 2.9x (FY2017: 2.8x) attributed to a contraction in equity to RM740.3 million in FY2018.

During 8MFY2019, ANIH’s toll revenue declined 11.7% to RM294.2 million attributed to revenue losses arising from the expiry of the KL-Seremban concession. The rating agency estimates that the revenue growth on KLK and ECE1 would make up for the lost revenue over the medium term. Meanwhile, ANIH’s borrowings have reduced during the year, aided by debt repayment amounting to RM100.0 million in November 2018.

As the traffic volumes on both KL-Karak and ECE1 continue to be lower than the projections given in the traffic consultant’s report, MARC has revised downwards the base case traffic for KL-Karak and ECE1 by 3% and 5%. Under the revised base case cash flow projections, ANIH’s minimum and average pre-distribution FSCR with cash balances are forecast at 3.05x and 3.79x. MARC also notes that in the event of toll hike deferrals without any cash compensation from the government throughout the sukuk tenure, project coverage is most susceptible in FY2026 due to a step-up in principal repayment to RM220 million in November 2026. 

Contacts:
Lim Chi Ching, +603-2717 2963/ chiching@marc.com.my; 
David Lee, +603-2717 2955/ david@marc.com.my.