RAM Ratings has reaffirmed the AA3/Stable rating of New Pantai Expressway Sdn Bhd’s (NPESB or the Company) RM490 million Senior Notes.

Published on 23 October 2014

RAM Ratings has reaffirmed the AA3/Stable rating of New Pantai Expressway Sdn Bhd’s (NPESB or the Company) RM490 million Senior Notes. Concurrently, we have placed the AA3(s) rating of the Company’s RM250 million Junior Notes on Negative Rating Watch. The Rating Watch signals imminent downward rating pressure on the Junior Notes upon expiry of its corporate guarantee on 31 October 2014. The Junior Notes’ rating has, since its issuance, been enhanced by a corporate guarantee from IJM Corporation Berhad (IJM).
Despite expectations of steady cash generation, lumpy principal repayments on the Junior Notes are expected to result in weak annual debt coverage indicators based on RAM’s projections , as measured by the Company’s FSCRs (with cash balances) of a minimum 1.57 times – reflective of a BBB rating. Under RAM’s commentary DSCR: A key quantitative measure in rating project-finance transactions (May 2011), a FSCR (with cash balances) of at least 2 times is required to maintain a AA3 rating.
NPESB holds the concession for the construction, operations and maintenance of the 19.6-km intra-urban New Pantai Highway (NPE or the Highway). Owing to its strategic alignment, the Highway continues to chalk up robust traffic growth. As at end-March 2014, it registered annual average daily traffic of 182,401 vehicles (+7.8% y-o-y). That said, we envisage traffic growth tapering marginally to between 4% and 7% per annum, assuming that existing toll arrangements remain the same. Our assessment also assumes that the Company will curtail any distributions or repayments to shareholders prior to the maturity of the Junior Notes.

As in most concession-related projects, the Company is exposed to regulatory and single-project risks. In respect of NPESB, the Government has not revised toll rates for the NPE since 2009, and in February 2011, reduced the rate at the PJS 2 toll plaza from RM1.60 to RM1, effective for a 5-year period. While we note that the Company has received timely cash compensation from the Government to date, we do not discount the possibility of future compensation taking non-cash forms. The credit implications of such an event will be assessed accordingly.
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
Chinthamani Thanneermalai
(603) 7628 1013
chinthamani@ram.com.my