RAM Ratings downgrades ratings of LEKAS's debt securities

Published on 23 December 2011
RAM Ratings has downgraded the ratings of Lebuhraya Kajang-Seremban Sdn Bhd’s (“LEKAS” or “the Company”) RM785 million Senior Sukuk Istisna’ (“Senior Sukuk’”) to BB1 (from BBB1) and RM633 million Junior Sukuk Istisna’ (“Junior Sukuk’”) to B1 (from BBB3). The negative outlook on the long-term ratings has been maintained. The widening rating differential between the Senior and Junior Sukuk reflects the latter’s subordination in terms of cashflow priority and security. LEKAS is the highway concessionaire for the 44-km Kajang-Seremban Highway (“KSH” or “the Highway”) until May 2039; full tolling operations commenced on 21 September 2010.
The rating downgrades are premised on the Highway’s persistently subdued traffic growth, coupled with its challenging prospects. There has also been limited progress to restructure the Senior and Junior Sukuk since the proposal was mooted in October 2010. As such, RAM Ratings is concerned about LEKAS’s ability to fully meet the Senior and Junior Sukuk’s principal repayments, which will begin in 2014 and 2023, respectively. The negative outlook indicates further downward rating pressure if efforts to restructure the Senior and Junior Sukuk fail to materialise in the near term.

In the first 13 months of full tolling operations, the Highway’s monthly average daily traffic increased slightly to 38,105 vehicles in October 2011, compared to 35,370 vehicles in October 2010. Moving ahead, the North-South Expressway’s (“NSE” - a competing route) recently completed toll-rate restructuring will exacerbate the disparity between the toll rates of NSE and KSH, favouring the former. The widening of the Semenyih stretch of Federal Route 1 (another competing route) since late 2010 will also deter traffic migration on to KSH. Meanwhile, LEKAS has represented that after the completion of the NSE’s tariff restructuring, efforts to restructure the Senior and Junior Sukuk will be intensified. On this note, LEKAS’s restructuring proposal has been delayed by the additional time required to complete a new traffic study for KSH, amid the earlier uncertainties surrounding the NSE’s toll rates.

Meanwhile, the rating of LEKAS’s RM50 million Redeemable Unsecured Loan Stocks (“RULS”) have been downgraded from B3 to D. RAM Ratings has also withdrawn the rating of the RM240 million Redeemable Convertible Unsecured Loan Stocks Programme (“RCULS”), following request from the Company; prior to the rating withdrawal, the RCULS was last rated at D. The respective D ratings of the RULS and RCULS reflect the deferment of the interest payments on both instruments. While interest payments on the RCULS and RULS are deferrable and cumulative under the terms of their trust deeds, failure to meet the scheduled interest payments is classified as a default based on RAM Ratings’ rating definition.

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