Thursday, Dec 09, 2021
MARC has downgraded Senai-Desaru Expressway Berhad’s (SDEB) RM1.89 billion Islamic Medium-Term Notes Programme (Restructured Sukuk) rating to BBIS from BBB-IS. The rating outlook remains negative.
The downgrade reflects our view that SDEB’s tight liquidity position has heightened the risk of the company not being able to address its upcoming financial obligations on a timely basis. The company’s considerable challenges to address its current predicament have been compounded by the declining traffic levels that have been exacerbated by the pandemic-induced closures and limited visibility on traffic recovery on Senai-Desaru Expressway.
SDEB has large financial obligations due in 2022, including a RM30.3 million payment due on June 30, 2022, and a RM30.8 million payment on December 31, 2022 under the rated programme against SDEB’s expected cash balance of around RM28.4 million at end-2021.
Traffic on Senai-Desaru Expressway continued to be subdued following a 24% fall in 2020. In 9M2021, traffic remained about 45% below the 2019 level. We estimate SDEB will need substantial revenue growth of around 60% in 2022 from the 2020 level or 31% from the 2019 level to comply with its finance service cover ratio covenant of 1.25x. We view this as an uphill task based on SDEB’s modest five-year compound annual growth rate of about 13.2% prior to the pandemic (2014-2019).
The Restructured Sukuk continues to carry a refinancing element, and therefore remains exposed to refinancing risk, although this could be partially mitigated by SDEB’s demonstrated record of capital market access. The rating could face further downgrades in the coming months if there are no remedial measures to address the company’s financial obligations.
Contacts:
The downgrade reflects our view that SDEB’s tight liquidity position has heightened the risk of the company not being able to address its upcoming financial obligations on a timely basis. The company’s considerable challenges to address its current predicament have been compounded by the declining traffic levels that have been exacerbated by the pandemic-induced closures and limited visibility on traffic recovery on Senai-Desaru Expressway.
SDEB has large financial obligations due in 2022, including a RM30.3 million payment due on June 30, 2022, and a RM30.8 million payment on December 31, 2022 under the rated programme against SDEB’s expected cash balance of around RM28.4 million at end-2021.
Traffic on Senai-Desaru Expressway continued to be subdued following a 24% fall in 2020. In 9M2021, traffic remained about 45% below the 2019 level. We estimate SDEB will need substantial revenue growth of around 60% in 2022 from the 2020 level or 31% from the 2019 level to comply with its finance service cover ratio covenant of 1.25x. We view this as an uphill task based on SDEB’s modest five-year compound annual growth rate of about 13.2% prior to the pandemic (2014-2019).
The Restructured Sukuk continues to carry a refinancing element, and therefore remains exposed to refinancing risk, although this could be partially mitigated by SDEB’s demonstrated record of capital market access. The rating could face further downgrades in the coming months if there are no remedial measures to address the company’s financial obligations.
Contacts:
Ati Affira Kholid, +603-2717 2941/ affira@marc.com.my;
Ummi Kalsom Yaacub, +603-2727 2934/ ummikalsom@marc.com.my;
Hafiza Abdul Rashid, +603-2717 2955/ hafiza@marc.com.my.