MARC affirms its ratings of Sistem Penyuraian Trafik KL Barat Sdn Bhd's (SPRINT) RM510 million Al Bai Bithaman Ajil Islamic Debt Securities (BaIDS) and RM365 million Bank Guaranteed Serial Fixed Rate Bonds (BG Bonds) at A+ID and AA-(bg) respectively

MARC affirms its ratings of Sistem Penyuraian Trafik KL Barat Sdn Bhd's (SPRINT) RM510 million Al Bai Bithaman Ajil Islamic Debt Securities (BaIDS) and RM365 million Bank Guaranteed Serial Fixed Rate Bonds (BG Bonds) at A+ID and AA-(bg) respectively. The outlook on the ratings is stable. SPRINT is the concession owner and operator of the 25.5km SPRINT highway consisting of the Damansara Link, Kerinchi Link and Penchala Link situated to the west of Kuala Lumpur.

The rating and outlook of the BG Bonds are underpinned by the credit strength of SPRINT's three guarantor banks, Public Bank Berhad, AmInvestment Bank Berhad and RHB Bank Berhad. In line with MARC's weakest link approach, the rating of the BG Bonds reflects lowest rating of the three banks which is AA-/Stable. Any changes to the rating and outlook on the BG Bonds would be largely underpinned by changes of the credit quality of the guarantor banks.

The non-guaranteed rating of the BaIDS reflects SPRINT's standalone credit profile which is supported by the satisfactory traffic performance of the highway which was largely in line with the independent traffic forecast of May 2011, as a result of which, actual operating profit and cash flow from operations (CFO) remain within MARC's expectations. Moderating the rating is the sensitivity of SPRINT's liquidity position to delays in the receipt of compensation paid by the government for deferring scheduled toll hikes.

The deferment of toll hikes of the Damansara Link and Kerinchi Link since 2008 and the Penchala Link since 2010 has also supported traffic growth which has surpassed projections in the first eleven months of 2012 (11M2012). The latest projections by Halcrow Consultants Sdn Bhd had incorporated toll hikes in 2012 per the toll schedule under the concession agreement. The Damansara Link had also benefited from the upgrade of the Taman Tun Dr Ismail (TTDI) interchange linking to the Lebuhraya Damansara-Puchong (LDP). The upgrade involved the construction of a flyover and underpass which significantly eases congestion and allows for smoother traffic flow from the Damansara Link to the Bandar Utama and Kota Damansara areas.

For the 11M2012 period, traffic on the Damansara Link and Kerinchi Link grew at an annualised rate of 4.0% and 5.8% respectively (2011: 1.8%, 6.8%), while traffic on the Penchala Link was below projections, showing an annualised growth of only 3.6% (2011: 7.9%). For the first four months of SPRINT's financial year ending March 31, 2013 (4MFY2013), the company recorded revenue and pre-tax loss of RM56.9 million and RM3.1 million respectively. Government compensation for the deferment of toll hikes accounted for RM19.2 million or a third of the company's revenue. Given the sizeable portion of SPRINT's revenue that takes the form of government compensation, SPRINT's liquidity is dependent on timely receipt of the government compensation. MARC notes that the payment for balance of compensation for the 2011 calendar year of RM23.5 million and advance compensation for 2012 of RM32.2 million was made on September 14, 2012. MARC is mindful that SPRINT's liquidity position will exhibit increased sensitivity to the timeliness of government compensation payments should the compensation amounts increase as a result of further toll hike deferments.

For the full financial year ended March 31, 2012 (FY2012), SPRINT recorded revenue and pre-tax loss of RM163.7 million and RM18.9 million respectively (FY2011: RM156.5 million, RM53.5 million). The narrowing losses were mainly due to lower amortisation of the company's highway development expenditure. The company's cash flow from operations (CFO) had improved to RM136.4 million (FY2011: RM104.9 million) and was sufficient to meet its principal and profit payments of RM60.0 million and RM71.6 million respectively. SPRINT's debt service cover ratio (DSCR) for the year was lower than expected at 1.94 times due to compensation receivables. Nevertheless, it is higher than its covenanted DSCR of 1.50 times.

The stable outlook reflects MARC's expectations that SPRINT should be able to meet its debt obligations in the context of moderate delays in payment of government compensation. Should the compensation receivables collection period increase, SPRINT would have to rely on its available cash and bank balances and final issuance of loan stocks of RM25 million to meet any liquidity shortfalls.

Contacts: David Lee, +603-2082 2255/ david@marc.com.my; Jason Kok, +603-2082 2258/ jason@marc.com.my; Ng Chun Kean, +603-2082 2230/ carter@marc.com.my.

February 26 , 2013