RAM Ratings reaffirms AA3 rating of Besraya’s RM700 million Sukuk

Published on 10 October 2012

RAM Ratings has reaffirmed the AA3 long-term rating of Besraya (M) Sdn Bhd’s (“Besraya” or “the Company”) RM700 million Sukuk Mudharabah Issuance Facility (“the Sukuk”); the long-term rating has a stable outlook. Besraya is the toll concessionaire for the 16.6-km Sungei Besi Highway (“SBH”), and the 13.4-km Besraya Eastern Extension (“BEE” or “the Extension”) that is currently under construction (the 2 routes are collectively known as “the Highways”). The concession of the Highways is valid until 15 May 2040.

The rating is supported by the Highways’ ready pool of traffic from the surrounding areas and Besraya’s strong debt-servicing ability. The Highways’ alignment, which straddles the southern corridor of the Klang Valley while being surrounded by numerous matured and densely populated areas, will provide ready traffic demand. In FYE 31 March 2012, the SBH’s performance exceeded our expectations with an average daily traffic (“ADT”) of 91,581 vehicles. In line with the Highways’ long-term growth potential and better traffic performance, we envisage their ADT to increase by about 30% when the BEE starts operations.

Based on Besraya’s annual cashflow and debt obligations, we expect a strong minimum finance service cover ratio (“FSCR”) of 2.00 times (with cash balances, post-distribution, calculated on the principal-payment date) throughout the tenure of the Sukuk (up to fiscal 2029). However, we caution that the Company’s debt coverage ratios will be affected by quantum of distributions to its shareholders over the next 2 to 3 years, amid uncertainties over the potentially higher-than-expected rise in construction costs and its ability to raise toll rates for the SBH in 2013; this will exert pressure on its rating.

Meanwhile, the construction of the BEE is vulnerable to pre-completion risk as potential delays in construction and cost overruns are key issues for a project under construction. The BEE is scheduled for completion in January 2014, at an estimated cost of RM708 million. As at end-June 2012, its overall construction was ahead of schedule, with 69.08% already completed compared to the projected 51.42%, and is likely to be completed prior to the scheduled completion date. However, cost overruns amounted to RM49 million following higher-than-anticipated land-acquisition expenses. Despite RAM Ratings’ assumption of an additional RM47 million of cost overruns, the Company’s debt-servicing ability is expected to remain intact, supported by the SBH’s cashflow-generating ability.

Notably, regulatory risk has heightened following the Government’s call on toll concessionaires to freeze, reduce or abolish their tariffs. The toll structure for the SBH’s Mines toll plaza is due for an increase effective January 2013; however, our cashflow projection assumes a 1-year delay in tariff hikes, accompanied by a 1-year delay in receiving cash compensation. Despite these assumptions, Besraya’s debt-servicing aptitude is expected to remain strong. Depending on the final outcome of the toll-rate revision, we will reassess the impact as more information is made available to us. Like all other toll-road companies, the rating of Besraya’s Sukuk remains moderated by single-project risk.

Media contact

Lee Chai Len

(603) 7628 1192

chailen@ram.com.my