MARC has affirmed its AAA_IS rating on Projek Lebuhraya Usahasama Berhad's (PLUS) RM23.35 billion Sukuk Musharakah Programme, concurrently removing the rating from MARCWatch Developing where it had been placed since January 24, 2020. The rating outlook is stable. 

The rating action is premised on MARC’s view that as long as the protracted negotiations between the government and the toll concessionaire remain unresolved, PLUS’ rights and benefits under the current concession agreement (CA) remain intact. This includes the entitlement to claim toll compensation for the 18% toll discount on relevant classes of vehicles effective February 1, 2020. MARC has also been made aware that pending completion of the negotiations, the existing and supplemental CAs between PLUS and the government will continue to subsist and remain in full force.

The government’s decision to reduce PLUS’ toll rates in February and maintain fixed toll rates throughout the concession period without any compensation while extending PLUS’ CA by 20 years to end-2058 from end-2038 currently had prompted the MARCWatch Developing placement. Negotiations with the government to address the implications of the aforementioned factors on PLUS’ financials under its current CA, and the interests of key stakeholders are still ongoing. In this regard, MARC views that any decision on the toll restructuring appears unlikely anytime soon given the government’s priority in addressing the economic uncertainties caused by the impact from the COVID-19 pandemic. 

The rating affirmation continues to incorporate a two-notch rating uplift from PLUS’ standalone rating, which reflects MARC’s assessment of strong government linkages as demonstrated in the interdependence between default events for the rated sukuk and the RM11.0 billion government-guaranteed sukuk maturing after the rated programme. The government’s golden share and indirect major shareholding in PLUS further support the assessment. 

PLUS’ standalone credit profile reflects the traffic resilience of its mature highway network as illustrated in its low peak-to-trough volume variance of only about 2% during the 2016-2019 period. Although road traffic during the Movement Control Order between March and May 2020 fell sharply by about 60% y-o-y, volume has recovered strongly since the easing of movement restrictions, with traffic between July and September 2020 recovering to above 90% of pre-pandemic levels.   

  

In terms of cash flow generation, MARC’s projections on excluding capex indicate that PLUS would be able to meet its financial obligations in the near term. Visibility on free cash flow will hinge on the extent PLUS can re-profile its capex budget and dividend plans. In this regard, MARC derives comfort from the fact that any distribution to shareholders is subject to a debt covenant of 2.0x and expects the company to continue managing its capex prudently. PLUS’ large cash balance of RM2.9 billion as at end-September 2020 also provides ample liquidity, well covering the RM1.97 billion of profit and principal repayments due next year while affording some headroom to navigate current challenges. 

The stable outlook assumes the traffic volume will continue to improve to pre-pandemic levels by 2022 and remain supportive of PLUS’ cash flow generation. When the toll restructuring negotiations with the government are completed in the near term, MARC will make a full assessment of the impacts on PLUS’ credit profile. 

Lim Wooi Loon, +603-2717 2943/ wooiloon@marc.com.my; 

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