RAM Ratings reaffirms ratings of New Pantai Expressway’s Senior and Junior Notes; outlook on Junior Notes revised to negative

Published on 14 January 2013

RAM Ratings has reaffirmed the AA3 rating of New Pantai Expressway Sdn Bhd’s (“NPESB” or “the Company”) RM490 million Senior Bai’ Bithaman Ajil Notes (2003/2014) (“Senior Notes”) with a stable outlook. Concurrently, we have reaffirmed the enhanced AA3(s) rating of NPESB’s RM250 million Junior Bai’ Bithaman Ajil Notes (2003/2016) (“Junior Notes”); the outlook on the Junior Notes, however, has been revised from stable to negative. NPESB holds the concession for the construction, maintenance and toll collection of the 19.6-km intra-urban highway known as the New Pantai Highway (“NPH” or “the Highway”).

The negative outlook on the Junior Notes signals that its rating will come under pressure upon the expiry of an unconditional and irrevocable corporate guarantee from IJM Corporation Berhad (“IJM” – NPESB’s ultimate holding company) in respect of the Junior Notes prior to the full redemption of the Senior Notes. In this regard, the current enhanced rating of the Junior Notes will revert to its stand-alone rating upon maturity of the Senior Notes. Based on RAM Ratings’ assessment, the projected sub-finance service coverage ratio (“sub-FSCR”) (with cash balances, on payment date), which is a measure of the cashflow protection afforded to the Junior Noteholders while the Senior Notes are outstanding, stands at a minimum 1.06 times. Upon full redemption of the Senior Notes, the Junior Notes’ finance service coverage ratio (“FSCR”) is envisaged to stand at a minimum of 1.45 times due to the ballooning debt repayment on the facility. Given its projected debt coverage levels, the Junior Notes’ stand-alone rating is aligned to a low investment-grade rating.

On a more positive note, the rating of the Senior Notes remains supported by the commendable growth in traffic volume on the NPH. In FY Mar 2012, average daily traffic (“ADT”) on the Highway climbed 9.9% year-on-year (“y-o-y”) to 155,282 vehicles as a result of robust traffic flow at all of its 3 toll plazas – Pantai Dalam, PJS 2 and PJS 5 – owing to the NPH’s favourable alignment straddling established townships. Toll reduction for Class 1 vehicles at PJS 2 served as an additional growth catalyst. The positive momentum extended into first 7 months of FY Mar 2013, when ADT went up 7.7% y-o-y (annualised) to around 167,000 vehicles.

Moving forward, NPESB is expected to maintain strong debt-coverage levels, with projected minimum and average Senior Notes’ FSCRs of 2.15 times and 2.30 times (with cash balances, post-distribution), respectively, on payment dates. In this regard, RAM Ratings’ assessment assumes no distributions to shareholders throughout the tenure of the Senior Notes and Junior Notes. Any deviation from our expectations will warrant a reassessment of the ratings.

However, the ratings remain moderated by regulatory risk that is inherent in all toll-road projects, and the fact that NPESB derives its income from a single project. While we note that 20% of the Company’s revenue, over the last 3 years, had been derived from cash compensation from the Government, we highlight that the timely receipt of compensation is vital to preserving its debt-servicing ability. Although NPESB has been receiving cash compensation thus far, we do not discount the possibility of future compensation taking non-cash forms. The credit implications of such an event will be assessed accordingly.

Media contact

Chinthamani Thanneermalai

(03) 7628 1013

chinthamani@ram.com.my