Dec 17, 2012 -
MARC affirms its ratings on
Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd’s (Kesturi) RM820 million Sukuk
Musyarakah Medium Term Notes Programme (Senior Sukuk) and RM50 million
Redeemable Junior Bonds (Junior Bonds) at AA-IS and A- respectively. The
outlook for both ratings is maintained at stable.
The affirmed ratings reflect the
satisfactory growth of traffic volume on Kesturi’s toll road concession on the
Duta-Ulu Kelang Expressway (DUKE) and the company’s improving financial
performance which has been adequate to meet its debt service obligations.
Moderating the ratings are the deterioration in Kesturi’s leverage metrics as a
result of growing accrued but unpaid preference share dividends (and all
accrued and unpaid interest thereon), increased traffic congestion which could
limit future traffic growth and the risk of deferred toll hikes. The stable
outlook reflects MARC’s expectations that traffic growth would continue to be
supportive of debt servicing on the rated obligations.
Traffic growth on the DUKE was
12.1% in the first nine months of 2012 (9M2012) compared with the previous
year’s corresponding period, although traffic volume remains marginally below
projections by 2.7%. In 2011, traffic volume was 3.0% below projections. Nevertheless,
MARC believes that there is sufficient buffer in the project’s cash flows and
long-dated repayments to withstand marginal deviations during the project’s
ramp-up phase. The average daily traffic during this period was 112,144
vehicles/day (9M2011: 100,436 vehicles/day) against projected figures of
115,219 vehicles/day.
For the full year ended December
31, 2011, Kesturi’s revenue increased to RM73.3 million (2010: RM63.0 million),
although this was 5.8% below projections. Kesturi continued to report pre-tax
losses in 2011 of RM43.9 million (2010: loss of RM45.9 million) mainly due to
depreciation and high financing costs. Kesturi’s recurring losses are a
consequence of sizeable declared but unpaid dividends of RM34.6 million on its
preference shares (2010: RM31.0 million), which constitute a material
proportion of the company’s financing costs. (Preference shares represent the
larger part of Kesturi’s equity base, at 98% of the total paid-up capital.)
However, as the dividends remain unpaid, (Kesturi has to meet its
post-distribution finance service cover ratio (FSCR), of 2.0 times (x) to make
payment of the dividends) the company’s cash flow from operations improved to
RM63.4 million (2010: RM38.4 million). Kesturi generated enough CFO to cover its
financing and profit payments in 2011. Kesturi maintained compliance with its
financial covenants which require a minimum FSCR of 1.75x for the Senior Sukuk
and 1.25x for the Junior Bonds. Its FSCR of the Senior Sukuk and Junior Bonds
was 2.51x and 2.11x respectively for 2011, including cash reserves. For 9M2012,
Kesturi posted a pre-tax loss of RM28.9 million on revenue of RM60.5 million,
with free cash flow of RM45.9 million.
MARC also notes that Kesturi is
in the midst of negotiating a supplementary concession agreement (CA) with the
government to build two additional links to the DUKE. The cost of additional
works is estimated at RM1.2 billion and Kesturi is planning a new debt
programme to fund the construction works and refinance the existing rated sukuk
and bonds. As such, MARC’s ratings and outlook on the Senior Sukuk and Junior
Bonds do not reflect sukuk/bond refinancing probability and the impact of
supplementary CA on project risk.
Contacts:
Jason Kok Ching Wui, +603-2082
2258/ jason@marc.com.my;
David Lee, +603-2082 2255/ david@marc.com.my.
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