Published on 29 October 2012
RAM Ratings has reaffirmed the
AA3 rating of Kesas Sdn Bhd’s (“Kesas” or “the Company”) RM800 million Al-Bai’ Bithaman
Ajil Islamic Debt Securities (2002/2014) (“BaIDS”). However, the outlook on the
long-term rating has been revised from stable to negative. Kesas is the toll
concessionaire for the 35-km Shah Alam Expressway (“the SAE” or “the
Expressway”) under a concession agreement (“CA”) that is valid until 18 August
2023.
The negative outlook signals
that the rating of the BaIDS may come under downward pressure if Kesas
continues making distributions to its shareholders, thereby eroding the
Company’s future cash buffers. This follows a RM48.5 million dividend payment
to Kesas’ shareholders in FYE 31 March 2012 (“FY Mar 2012”) and a lumpy RM278
million that will come due under the BaIDS in fiscal 2014, relative to the
Company’s projected pre-financing cashflow of RM197 million for the same year.
It is crucial that Kesas retains cash, particularly by curtailing distributions
to its shareholders, to cushion against any liquidity pressure.
RAM Ratings’ assessment assumes
no further distributions to Kesas’ shareholders via dividends or interest
expenses on its redeemable convertible unsecured loan stock for the remainder
of the BaIDS’s tenure; this translates into projected finance service coverage
ratios (“FSCRs”) (with cash balances, calculated on debt-repayment dates) of
1.22 times on 10 October 2013 and 2.06 times on 10 October 2014. Any deviation
from our expectations will warrant a reassessment, and is likely to exert
downward pressure on the rating.
On a more positive note, the
Expressway has been showing commendable traffic-volume growth in recent years,
despite the competition it faces from other routes such as Federal Highway
Route 2 and the New Pantai Expressway. In FY Mar 2012, the Expressway’s average
daily traffic climbed 7.9% year-on-year to 275,418 vehicles, supported by
organic traffic-volume growth from the developments along the corridor (FY Mar
2011: +8.9%, 255,193 vehicles).
As with all toll
concessionaires, however, the rating remains moderated by regulatory risk that
is inherent for all toll-road projects, as well as single-project risk. To this
end, RAM Ratings understands that there will be no toll-rate increase for Kesas
from 2011 to 2015. However, compensation remains uncertain at this juncture.
While we note that the Company is entitled to claim compensation from the
Government for non-revision of tariffs, such redress may take non-monetary
form. While our sensitised cashflow analysis shows that Kesas will have
adequate cash to repay its outstanding financial obligations without any compensation
from the Government, we highlight that distributions to its shareholders will
have to be held back under such a scenario.
Media contact
Davinder Kaur Gill
(03) 7628 1118
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