MRCB Southern Link’s sukuk ratings still on Rating Watch

Published on 18 December 2013

RAM Ratings is maintaining the Rating Watch (developing outlook) on the BBB3 rating of MRCB Southern Link Berhad’s (the Company) RM845 million Senior Sukuk and the BB1 rating of its RM199 million Junior Sukuk, pending the Government’s long-term solution to address  the inability of the Eastern Dispersal Link (EDL or the Highway) to start tolling operations.

Despite plans for a buyout of the Highway, we understand that a final buyout price has yet to be reached between the Government and MRCB Lingkaran Selatan Sdn Bhd (the Concessionaire). An agreement on the final buyout price for the EDL, which will effectively repay the Sukuk, will be a positive development for the Company. On the other hand, any proposal for the commencement of tolling operations will need to take into consideration the Company’s cashflow generation against its annual debt-servicing obligations. We expect to resolve the Rating Watch upon finalisation of the Government’s long-term solution that will address the Concessionaire’s inability to collect toll on the EDL.

In the interim, the Concessionaire continues to receive RM11 million per month from the Government as part of a short-term measure to address its inability to begin tolling operations. The Company received RM209 million of interim payments up to November 2013. Its cash balances of RM113.6 million as of early December are expected to sufficiently cover its near-term obligations on the Senior and Junior Sukuk. The rating differential between the Senior and Junior Sukuk reflects the latter’s subordinated status from a legal perspective.

MRCB Southern Link is a funding conduit for the construction of the 8.1-km EDL in Johor Bahru. Although open to the public since 1 April 2012, toll collection has yet to commence for the EDL.

RAM’s Rating Watch highlights a possible change in an issuer's debt rating. It focuses on identifiable events such as mergers, acquisitions, regulatory changes and operational developments that place a rated debt under special surveillance by RAM. In a broader sense, it covers any event that may result in changes in the risk factors relating to the repayment of principal and interest.

Issues will appear on RAM's Rating Watch when some of the above events are expected to or have occurred. Appearance on RAM's Rating Watch, however, does not inevitably mean that the rating will be changed. It only means that a rating is under evaluation by RAM and a final affirmation is expected to be announced. A "positive" outlook indicates that a rating may be raised while a "negative" outlook indicates that a rating may be lowered. A “developing” outlook refers to those unusual situations in which future events are so unclear that the rating may potentially be raised or lowered.

Media contact

Lee Chai Len

(603) 7628 1192

chailen@ram.com.my