Published on 18 Jan 2019.
RAM Ratings has reaffirmed the AA3/Negative rating of Besraya (M) Sdn Bhd's (Besraya or the Company) RM700 million Sukuk Mudharabah Issuance Facility (2011/2028). The negative outlook reflects our ongoing concerns about the Company's higher than expected dividend distributions, which may deteriorate its debt-servicing indicators. Following Besraya's hefty RM70 million dividend payout in FY Mar 2018, its resultant projected finance service coverage ratio (FSCR, with cash balances, post-distribution) under RAM's sensitised case suggests no headroom for further distributions and/or underperformance in its cash-generating ability, in order to maintain the FSCR threshold of 2 times for AA3-rated transactions. The negative outlook will be maintained until the Company is able to display a consistent track record of financial discipline. Meanwhile, on the Sukuk's latest principal repayment date of 28 July 2018, the Company's FSCR (with cash balances, post-distribution) of 2.43 times was slightly higher than our expectation, largely due to traffic outperformance at the Loke Yew plaza. Given that the Company is currently constructing Kuchai Link 2, which will necessitate sizeable capex over the next two years, cash retention will have to be prioritised during this period.
The reaffirmation of the rating is based on Besraya's stable earnings and cashflow-generating ability, underpinned by the established traffic profile of the Sungai Besi Highway and the Besraya Eastern Extension (collectively known as "the Highways"). The Highways registered an average daily traffic (ADT) of 156,100 vehicles and a 3.8% y-o-y ADT growth in FY Mar 2018, attributable to the steady increase in traffic volume by 11.8% y-o-y at the Loke Yew toll plaza. That said, the ADT for the Mines toll plaza contracted 1.0% y-o-y in the same period, due to the availability of alternative routes. As such, we have assumed that Besraya's last toll-rate hike will take place in 2020 (originally scheduled for 1 January 2018), with a 4.0% contraction in the Highway's traffic volume. Thereafter, traffic growth is anticipated to recover at an average of 1.3% per annum throughout the remaining tenure of the Sukuk.
Should the tariff hike be deferred, Besraya's debt-servicing capacity would be compromised if the Company were not fully compensated through cash payments. We note that the Government of Malaysia (GoM) has discharged its compensation obligations despite some delay. We believe the GoM will continue honouring the compensation arrangement in the event of non-revision of toll rates, as can be observed to date.
Similar to other toll-road projects, Besraya is inherently exposed to regulatory and single-project risks.
Ong Ju Laine
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