MARC has affirmed its rating on ANIH Berhad's (ANIH) RM2.5 billion Senior Sukuk Musharakah Programme (Sukuk Programme) at AAIS with a stable outlook.

Sep 27, 2013 -
MARC has affirmed its rating on ANIH Berhad's (ANIH) RM2.5 billion Senior Sukuk Musharakah Programme (Sukuk Programme) at AAIS with a stable outlook. ANIH is the concessionaire for the Kuala Lumpur-Karak Highway (KL-Karak), Phase 1 of the East Coast Expressway (ECE1) and the Kuala Lumpur-Seremban Expressway (KL-Seremban). The affirmed rating continues to be underpinned by the strong competitive positions of ANIH’s portfolio of matured toll road concessions, strong traffic performances which are consistent with expectations and supportive of finance service obligations, and the subordinated RM620.0 million unrated Junior Bonds which allow the issuer to withstand more severe stresses. Constraining the rating are the company’s high gearing level and strong reliance on scheduled toll hikes to maintain debt service coverage levels that are commensurate with the current rating.
In the latest financial year ended March 31, 2013 (FY2013), the traffic volumes on ANIH’s toll road concessions remained robust and above projections. ANIH’s main contributing highways, the KL-Karak and ECE1, registered traffic growth rates of 5.1% and 10.5% respectively in FY2013 (FY2012: 6.7%; 11.8%), while the traffic volume on the KL-Seremban was flat at 129,088 passenger car units per day (pcu/day) (FY2012: 128,995 pcu/day). KL-Seremban’s flat growth, which is mainly attributed to capacity constraints of the highly matured highway, is not a concern given its small contribution to ANIH over the remaining concession period of the highway which ends in 2018.
In line with the better-than-projected traffic volumes, revenue and operating cash flow (CFO) generation in FY2013 of RM353.1 million and RM230.6 million exceeded ANIH’s projections by 7.7% and 16.8% respectively. The concessionaire registered a pre-tax profit of RM23.8 million compared to a projected pre-tax loss of RM47.3 million on account of the lower amortisation costs in FY2013 after goodwill arising from the acquisition of the highways had been fully impaired in FY2012. ANIH’s cash flow remains strong despite the accumulated losses of RM258.2 million as at end-FY2013 (FY2012: RM282.0 million) which arose mainly from the impairment and amortisation of the highway assets. ANIH’s strong CFO generating capability yielded a forward-looking finance service cover ratio (FSCR) for FY2013 of 2.91 times, well above its projected and covenanted FSCRs of 2.39 times and 1.75 times respectively. As expected, ANIH’s steady cash flow generation enabled liquidity to improve to RM257.8 million as at end-FY2013 (FY2012: RM160.7 million).
A key driver of ANIH’s credit profile would be the timely implementation of scheduled toll hikes for the KL-Karak and ECE1 in 2015 and 2020. ANIH’s first sukuk repayment of RM50 million commences in November 2014; subsequent repayments will rise rapidly to RM100 million in 2016 and continue to increase to RM200 million in 2024. With the benefit of the toll hikes, toll revenues are expected to increase to service ANIH’s rising annual debt service payments, providing forecast minimum and average base case FSCRs of 2.35 times and 3.20 times respectively for the remaining tenure of the sukuk. Some cushion for periods of underperformance is provided by the coupon deferral feature of the Junior Bonds which allows unpaid coupons due to non-fulfilment of the minimum 2.50 times post-distribution FSCR covenant to be accumulated and paid on the maturity of the respective tranche of the Junior Bonds. 
The stable outlook incorporates MARC’s expectations that the traffic demand for the KL-Karak and ECE1 would continue to support consistency in ANIH’s financial metrics, in particular the maintenance of FSCR levels commensurate with the current rating together with the scheduled toll increase in January 2015. ANIH’s senior rating could come under pressure if coverage levels erode significantly as a result of inability to implement scheduled toll increases. MARC expects traffic demand for the highways to exhibit modest elasticity to the recent fuel price hikes in light of the highways’ historically stable demand profile.
Contacts:
Koh Shu Yunn, +603-2082 2243/ shuyunn@marc.com.my;
David Lee, +603-2082 2255/ david@marc.com.my.