MARC AFFIRMS AA-ID RATING ON MAJU EXPRESSWAY SDN BHD’S RM550 MILLION IMTN PROGRAMME; OUTLOOK STABLE

Sep 7, 2012 -

MARC has affirmed its AA-ID rating on Maju Expressway Sdn Bhd’s (MESB) RM550.0 million Islamic Medium Term Notes (IMTN) Programme. The rating outlook is stable.

MESB is the owner and concession holder of the Maju Expressway (MEX), a 26-kilometre open toll urban highway which connects Kuala Lumpur city centre with Putrajaya and Cyberjaya. The rating is supported by strong traffic growth since the opening of the highway and anticipated steady growth in expressway traffic, the concessionaire’s low debt level and the programme’s fairly back-ended maturity profile. The rating incorporates the sensitivity of cash flow coverage measures to changes in operating conditions, such as traffic growth and toll hike approvals, and unbudgeted outlays on highway extension.

The MEX continues to record healthy growth in traffic since MARC’s last review; traffic volume at its Putrajaya and Salak South toll plazas increased by 14.0% in 2011 to 90,051 vehicles/day (2010: 78,962 vehicles/day), surpassing projected figures of 82,732 vehicles/day. Traffic growth has been supported mainly by increasing population and commercial activity in Putrajaya and Cyberjaya, as well as the growth in air travel through the Kuala Lumpur International Airport (KLIA). In the first five months of 2012, traffic volume grew to 96,187 vehicles/day, an increase of 11.4% compared to the preceding year’s corresponding period. The revised forecast by independent traffic consultant, SKM Colin Buchanan, undertaken in November 2011 sees an upward revision in projected annual traffic volume by 8.3%.

The higher-than-forecast traffic growth has resulted in MESB surpassing its 2011 revenue projection of RM57.8 million by 8.8%. Revenue for the financial year ended December 31, 2011 grew to RM62.9 million (2010: RM54.6 million); simultaneously, operating profit also improved to RM39.3 million (2010: RM33.9 million). However, due to higher financing expenses, MESB continued to record a pre-tax loss, albeit a smaller loss of RM1.6 million compared to RM3.3 million the year before.

MESB’s cash flow from operations (CFO) before working capital changes of RM40.6 million (2010: RM34.9 million) have been in line with projections of RM41.9 million. However, the company’s net CFO of RM22.7 million (2010: negative RM46.5 million) was below expectations mainly due to an additional RM25.6 million payment paid to its ultimate holding company, Maju Holdings Sdn Bhd (Maju) in 2011 for refundable deposits and preliminary expenses relating to the proposed extension of MEX to KLIA. Of rating significance to MARC is the higher-than-expected depletion of MESB’s balance sheet liquidity arising from these unbudgeted outlays as the company had made similar payments of RM54.1 million in 2010. MESB’s cash balance has dropped to RM66.2 million (2010: RM76.5 million). MARC remains concerned that additional start-up expenses in relation to the extension of MEX to KLIA will limit MESB’s ability to retain its earnings and cash flow, and lower its resilience against any future underperformance in traffic projections.

Notwithstanding the losses and lower-than-expected cash balance, MESB remains in compliance with its financial covenants; its debt-to-equity ratio stood at 0.49 times (2010: 0.55 times) and finance service cover ratio (FSCR) is 2.58 times (2010: 2.51 times). Based on its updated financial projections, MESB’s minimum and average FSCRs have been revised to 3.82 times and 9.73 times respectively over the remaining tenure of the IMTN Programme in line with the revised traffic forecast.

Rating stability is conditioned upon actual traffic growth levels and toll rates remaining supportive of MESB’s cash flow generation. The rating outlook does not take into account the proposed acquisition of MESB and the MEX by EP Manufacturing Bhd and the likely refinancing of the rated debt in the event that the transaction closes.

Contacts:

Jason Kok Ching Wui, +603-2082 2258/ jason@marc.com.my;

Koh Shu Yunn, +603-2082 2243/ shuyunn@marc.com.my;

David Lee, +603-2082 2255/ david@marc.com.my.