MARC AFFIRMS AAIS RATING ON ALLOY PROPERTIES SDN BHD’S SUKUK MUSYARAKAH PROGRAMME

Oct 22, 2012 -

MARC has affirmed Alloy Properties Sdn Bhd’s (APSB) RM240 million Sukuk Musyarakah Medium Term Notes Programme rating at AAIS. The rating outlook is stable.

The affirmed rating reflects the adequacy of cash flows from the three identified payment sources for the sukuk: APSB’s rental income from its two office buildings and assigned cash flows from sister companies, Alloy Toll Management Sdn Bhd (ATM) and Alloy Maintenance Engineering Sdn Bhd (AME), operators of the Kuala Lumpur-Karak Highway (KL-Karak) and Phase 1 of the East Coast Expressway (ECE1). The rating also considers the operational priority of ATM and AME’s revenue over the senior debt of the concession holder of the toll roads, ANIH Berhad (ANIH), which is rated AAIS /Stable by MARC. ATM and AME are expected to generate 70% of cash flows for the service and repayment of the sukuk. The rating is constrained by the sensitivity of the issuer’s debt service coverages to actual traffic volumes on the aforementioned highways, as well as the adequacy of compensation payments received from ANIH to offset the impact of toll hike deferments on ATM’s toll collection revenues.

MARC views positively the six-month lease extension and retrospective revision of rental rates at APSB’s Shell Building, which were previously not accounted for in its cash flow projections. The contribution of the office building to APSB’s overall revenues will increase over the near term, partially mitigating the risk associated with the upcoming expiry of the building’s single-tenant lease in March 2013.  The higher-than-forecast actual traffic volumes on the KL-Karak and ECE1 and compensation received from related entity and holder of the two highway concessions, ANIH, have offset the impact of the termination of the East-West Link Expressway and freeze in toll hikes for the KL-Karak and ECE1 on APSB’s cash flow profile. ATM and AME’s strong financial performance in 2011 reflected higher-than-forecast traffic growth on the KL-Karak and ECE1 and the RM1.2 million of compensation received by ATM from ANIH. For the 15 months ended March 31, 2012 (15M2012), ATM recorded pre-tax profit of RM27.6 million on revenue of RM41.6 million (financial year ended December 31, 2010 (FY2010): RM30.2 million, RM19.1 million), while AME posted a pre-tax profit of RM14.2 million on revenue of RM114.3 million (FY2010: RM68.7 million, RM10.0 million).

In 15M2012, APSB’s cash flow from operations and advances from ATM and AME totalled RM24.3 million compared to RM28.8 million in FY2010 and projected amount of RM25.6 million for the 15 months period. The lower total cash flows in 15M2012 were mainly due to a one-time payment of RM4.4 million made to AME’s subcontractors for unbudgeted maintenance works. Along with the sukuk’s first principal reduction of RM10.0 million in March 2012, APSB’s cash balance fell to RM26.4 million (FY2010: RM31.0 million). Nevertheless, the total cash balances and short-term investments of APSB, ATM and AME which stand at RM68.6 million provides more than adequate liquidity to address profit payments and upcoming principal repayment of RM14.0 million in March 2013. APSB’s forward-looking annual debt service coverage ratio (DSCR) computed as of March 31, 2012 is 2.55 times, compared to its DSCR covenant of 1.75 times.

The stable outlook reflects MARC’s expectations of stable traffic growth on the KL-Karak and continued timely payment of compensation from ANIH to ATM.  

Contacts:

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

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

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