Tuesday, January 28, 2014

MARC AFFIRMS ITS AA-IS RATING ON CERAH SAMA SDN BHD'S RM420.0 MILLION SUKUK




Jan 28, 2014 -

MARC has affirmed its rating of AA-IS on Cerah Sama Sdn Bhd’s (Cerah Sama) RM420.0 million sukuk issued under its RM750.0 million Sukuk Musharakah Programme with a stable outlook.

Cerah Sama is the investment holding company of Grand Saga Sdn Bhd (Grand Saga), the concession holder of the 11.5-kilometre Cheras-Kajang Highway. Cerah Sama also acts as the investment vehicle of its major shareholders, Taliworks Corporation Berhad and the South East Asian Strategic Asset Funds L. P. (SEASAF) to seek investment opportunities in other toll roads, both locally and abroad. MARC notes that Cerah Sama has no other debt at the consolidated level other than the rated senior debt of RM420.0 million.

The rating reflects Cerah Sama’s adequate cash flow coverage supported by the discretionary cash flow, in the form of upstreamed dividends from Grand Saga. As Grand Saga provides the main source of repayment for the RM420.0 million sukuk issuance, the rating primarily hinges on Grand Saga’s credit profile. Supporting Grand Saga’s standalone metrics are the stable cash flow generation on the back of the highway’s matured traffic performance and strong operational track record. The key moderating factors include the dependency on toll rate hikes to service debt and potential impact on traffic volume from the Klang Valley Mass Rapid Transit (MRT) project. The current rating does not factor in any drawdown of the remaining RM330.0 million of availability under the Sukuk Musharakah Programme for potential business acquisitions.

For the ten-month financial period ended October 31, 2013 (10M2013), Cerah Sama recorded revenue of RM50.5 million against projected RM51.2 million on the back of lower traffic volume following the closure of the left-most lane for MRT construction works near the Bandar Tun Hussein Onn interchange (Kuala Lumpur-bound). The construction work is expected to last until mid-2014. While the commencement of MRT operations in 2017, could affect Grand Saga’s traffic volumes, MARC believes the impact will be temporary given the highway’s stable demand profile supported by the surrounding township development. Assuming the timely implementation of the scheduled toll hikes, MARC’s cash flow sensitivity analyses of Cerah Sama’s latest financial projections demonstrate that it can still sustain debt servicing under a stress scenario of 5.0% lower traffic growth per annum throughout the sukuk tenure. Although Cerah Sama’s current cash balance provides ample buffer against traffic underperformance, MARC is mindful that any potential acquisitions and/or aggressive dividend policy may weigh on the company’s liquidity position.

The stable outlook continues to hinge on MARC’s assumptions that the political and regulatory environment would remain supportive of Cerah Sama’s business operations as evidenced by the timely compensation from the government. Although the stable traffic profile of the highway provides an adequate finance service coverage ratio of more than 1.75 times under most scenario tests, the ratings or outlook could come under pressure if Cerah Sama’s credit profile changes materially as a result of a sizeable business acquisition.

Contacts:
Tan Eng Keat, +603-2082 2265/ engkeat@marc.com.my;
David Lee, +603-2082 2255/ david@marc.com.my.



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