RAM Ratings reaffirms Penang Bridge's AA2 debt ratings

Published on 21 July 2011
RAM Ratings has reaffirmed the AA2 ratings of Penang Bridge Sdn Bhd’s (PBSB or the Company) RM785 million Al-Bai’ Bithaman Ajil Facility (2000/2013) (BaIDS) and RM695 million Redeemable Zero-Coupon Serial Sukuk Istisna’ (2006/2019) (Sukuk) – collectively known as “the Facilities”; both long-term ratings have a stable outlook. PBSB, a single-purpose company, is the concessionaire for the 13.5-km Penang Bridge (the Bridge).

Supported by its monopolistic nature as the sole road link between Penang island and the mainland, the Bridge has been charting stable traffic-volume growth, with a compounded annual growth rate of 2.75% between 2001 and 2009. In 2010, traffic volume increased 10.22% to 25.44 million passenger-car units (PCU) (2009: 23.08 million PCU). The trend carried through the first 5 months of 2011, with a 5.78% year-on-year rise to 10.85 million PCU. The impressive performance is attributable to Penang’s rejuvenated economy and also traffic migration from the Penang ferry service to the Bridge following the opening of its third lane in August 2009, thereby expanding its capacity and easing congestion.

Meanwhile, the management expects the opening of the Second Penang Bridge (Second Bridge) - expected by 4Q 2013 - to reduce the Bridge’s traffic volume by about 16%. Nonetheless, it is difficult to gauge the exact traffic patterns. We, however, opine that the existing bridge is likely to remain the principal road link between the mainland and the island of Penang given its more strategic alignment.

RAM Ratings’ cashflow analysis assumes a 20% reduction in the Bridge’s traffic volume upon the completion of the Second Bridge. Under this scenario, PBSB is still projected to register strong minimum and average finance service cover ratios (with cash balances, post-distribution, calculated on principal repayment dates) of 2.49 times and 2.93 times, respectively, throughout the tenures of the Facilities. Nonetheless, we caution that a greater-than-expected reduction in traffic volume for the Bridge will affect the Company’s debt-coverage levels, thus exerting downward pressure on the Sukuk’s rating.

Notably, PBSB has not declared or paid any dividend since fiscal 2001, as the management is mindful about adhering to the stringent financial covenants on a forward-looking basis. Under this scenario, RAM Ratings assumes that there will be no distributions to shareholders throughout the tenures of the Facilities.

In the meantime, the ratings remain moderated by single-project and regulatory risks. Given that PBSB derives its income from a specific project, a force majeure event could disrupt its entire operations, without any alternative source of cashflow to meet the Company’s debt-servicing obligations. On the other hand, Penang Bridge has never been allowed any toll-rate revisions, although cash compensations have been forthcoming to date.

Media contact
Michael Ti
(603) 7628 1015
michael@ram.com.my