Ratings of New Pantai Expressway’s Senior and Junior Notes reaffirmed; negative outlook on Junior Notes remains

Published on 19 November 2013

RAM Ratings has reaffirmed the AA3/Stable rating of New Pantai Expressway Sdn Bhd’s (NPESB or the Company) RM490 million Senior Bai’ Bithaman Ajil Notes (2003/2014) (Senior Notes). Concurrently, we have reaffirmed the enhanced long-term rating of the Company’s RM250 million Junior Bai’ Bithaman Ajil Notes (2003/2016) (Junior Notes) at AA3(s)/Negative. The Junior Notes are supported by an unconditional and irrevocable corporate guarantee from IJM Corporation Berhad (IJM – NPESB’s ultimate holding company). The negative outlook on the Junior Notes’ enhanced rating signals that it will be downgraded upon the expiry of the corporate guarantee from IJM in October 2014. Our assessment of the Junior Notes’ stand-alone rating would consider the lumpy principal repayments in 2015 and 2016 and the resulting weak projected debt coverage levels for NPESB’s Junior Notes which currently commensurate with a low investment grade rating.

NPESB holds the concession for the construction and maintenance of and toll collection on the 19.6-km intra-urban highway known as the New Pantai Highway (NPH or the Highway).

The ratings reflect NPH’s healthy traffic profile, underscored by its strategic alignment straddling densely populated areas, as well as NPESB’s robust debt coverage levels for the Senior Notes. The Highway’s average daily traffic (ADT) climbed 9.3% y-o-y to 169,189 vehicles in fiscal 2013. Considering NPH’s mature traffic profile, over the next 4 years, we envisage its average annual traffic volume rising to between 3% and 7% during years when there is no increase in toll rate, and contracting 3% when the rate is hiked. The Senior Notes’ FSCR (with cash balances, on principal repayment dates), meanwhile, is envisaged to remain robust at a minimum 2.5 times.

As with most concession-related projects, the Company is exposed to regulatory and single-project risks. The impact of regulatory risk is more pronounced in respect of NPESB as approximately 23% of its revenue over the last 4 years has been derived from cash compensation from the Government. On this note, the Company has received timely cash compensation from the Government to date. We, nonetheless, 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

(603) 7628 1013

chinthamani@ram.com.my