RAM Ratings reaffirms AA3 rating of Cerah Sama's Islamic securities

Published on 23 December 2011
RAM Ratings has reaffirmed the AA3 rating of Cerah Sama Sdn Bhd’s (“Cerah Sama” or “the Group”) first issuance of RM380 million under its RM600 million Islamic Medium-Term Notes (“IMTN”) Programme; the long-term rating has a stable outlook. Cerah Sama is an investment-holding company that wholly owns Grand Saga Sdn Bhd (“Grand Saga”) – operator of the Cheras-Kajang Highway (“the Highway”) – and Trupadu Sdn Bhd, its provider of operation and maintenance services.

The Group’s strong business profile remains anchored by its ownership of the Highway. In FYE 31 December 2010 (“FY Dec 2010”), the Highway’s average daily traffic (“ADT”) rose 10.56% year-on-year to 221,498 vehicles, supported by organic traffic growth from developments along its corridor and the completion of upgrading work at the Taman Len Seng-Connaught interchange (completed in April 2010). The double-digit growth is also partially attributable to latch-on traffic from the Kajang-Seremban Highway (or LEKAS Highway). Going forward, RAM Ratings expects the Highway to maintain a steady increase in traffic flow, supported by organic growth.
At the end of FY Dec 2010, Cerah Sama’s funds from operations debt coverage ratio stood at 0.15 times. While this is lower than those of the other AA-rated corporates in RAM Ratings’ universe, we draw comfort from the transaction’s financial covenants and cash-trap mechanisms, which prioritise the Group’s obligations to the IMTN holders against payments to shareholders. Notably, the Group’s minimum finance service coverage ratio (“FSCR”) (with cash balances, post-distribution) on payment date is projected to come in at 1.96 times throughout the tenure of the IMTN Programme. Our cashflow analysis assumes that Cerah Sama will maximise distributions to shareholders, subject to meeting its financial covenants throughout the tenure of the debt facility (i.e. on a forward-looking basis, as opposed to only the year of assessment). Such financial covenants include compliance with the requirements of its finance service reserve account and debt-to-equity ratio, as well as a post-distribution FSCR of 2.00 times.

In relation to the Government’s recent announcement on the removal of toll plazas along the Highway, we note that although nothing has been firmed up just yet, the Highway’s existing toll rates and future increments may be restructured while compensation may take on non-monetary forms or through a combination of cash and a longer concession period. While Grand Saga had been adequately compensated by the Government for previous amendments of its concession agreement, future compensation arising from changes to the concession terms will need to be assessed for credit implications. All said, Cerah Sama’s credit profile remains moderated by single-site risk that is inherent in all toll-road projects.

Media contact
Chew Wei Li
(603) 7628 1025
weili@ram.com.my

Davinder Kaur Gill
(603) 7628 1118
davinder@ram.com.my