MARC has affirmed its rating of AA-_IS on toll road concessionaire Grand Sepadu (NK) Sdn Bhd’s RM210.0 million Sukuk Murabahah. The rating outlook has been revised to stable from negative. The outstanding sukuk stood at RM150.0 million as at August 5, 2020. 

The revised outlook incorporates a substantial reduction in the uncertainties surrounding the collection of toll compensation for Grand Sepadu from the government since 2018. We observe that collection of toll compensation has returned to normal after a delay in payment for year 2018. The compensation for 2018 has been received last year while 50% of the compensation due in 2019 was also received in that year. Collection is thus back to the regular cycle, i.e. 50% of compensation is received in the current year with the other half in the following year. 

The affirmed rating considers the status of Grand Sepadu’s 17.5-km New North Klang Straits Bypass as a mature asset with modest, long-term traffic growth. Traffic volume grew at a compounded annual growth rate of 1.25% over 2015-2019, translating to a relatively stable financial performance for Grand Sepadu over the years. 

The company’s financial results were within expectations in 2019, with toll revenue up 4.9% y-o- y to RM50.3 million (excluding compensation). However, 2020 will be a challenging year in light of the impact from the COVID-19 pandemic, particularly the restrictions associated with the imposition of the movement control order (MCO) which had caused traffic to fall steeply during this period. Traffic volume and toll revenue were down by about 75% in the first two weeks of the MCO implementation but rose gradually in subsequent weeks, picking up as the MCO restrictions were eased. By the week of July 28, traffic volume and toll revenue were down by just 1% from the week prior to the MCO commencement date.

Nonetheless, as the COVID-19 situation is still evolving, MARC has focused on downside scenarios in 2020 and 2021, as well as Grand Sepadu’s liquidity position. We view that Grand Sepadu could withstand up to a 40% drop in toll revenue in 2020 and maintain its financial service cover ratio (FSCR) at the covenanted 1.75x. This is also based on the assumption of no toll increase and a one-year deferment in the receipt of toll compensation, as well as no dividend distribution. However, dividend distribution by the same quantum as assumed in the company’s base case would result in the FSCR falling below 1.75x. In this regard, MARC expects Grand Sepadu to exercise discipline in its dividend distribution and manage its cash retention, ensuring its liquidity and leverage metrics are not jeopardised should traffic volumes fall lower than expected. 

Ati Affira Kholid, +603-2717 2941/ affira@marc.com.my;

Hafiza Abdul Rashid, +603-2717 2955/ hafiza@marc.com.my.