Wednesday, January 28, 2015

MARC AFFIRMS ITS AAAIS RATING ON PROJEK LEBUHRAYA USAHASAMA BERHAD’S RM23.35 BILLION SUKUK MUSHARAKAH PROGRAMME



MARC has affirmed the AAAIS rating on tolled road concessionaire Projek Lebuhraya Usahasama Berhad's (PLUS Berhad) RM23.35 billion Sukuk Musharakah Programme (sukuk) with a stable outlook. The rating affirmation continues to incorporate a two-notch rating uplift from PLUS Berhad’s standalone rating of AA on the basis of support assumption from the Malaysian government with respect to the programme. The support assumption is based on the government’s golden share and indirect shareholding via UEM Group Berhad (51.0%), a wholly-owned subsidiary of Khazanah Nasional Berhad, and the Employees Provident Fund Board (49.0%) in the concession company; as well as the interdependence between default events for the rated sukuk and RM11.0 billion government-guaranteed sukuk (GG Sukuk) that matures after the rated programme. MARC also considers the critical role of the North-South Expressway (NSE), PLUS Berhad’s 80% revenue contributor, in the country’s transportation system.

PLUS Berhad’s standalone rating is supported by the stable traffic performance of its matured toll concessions, namely PLUS expressways (including New Klang Valley Expressway (NKVE) and the NSE), North-South Expressway Central Link (NSECL), Malaysia-Singapore Second Link (MSSL), Butterworth-Kulim Expressway (BKE) and the Penang Bridge; as well as the company’s satisfactory debt service coverages. The rating is constrained by the group’s high leveraged position and the potential impact on traffic volume from upcoming new highways and alternative modes of transport. In addition, traffic volume growth remains susceptible to the country’s economic performance.

PLUS Berhad’s overall traffic volume registered in 2013 was consistent with the rating agency’s expectations. For the first nine months of 2014 (9M2014), the NSE recorded a year-on-year (y-o-y) traffic growth of 2.3% to 12.35 billion passenger car unit-kilometres (PCU-km). The NKVE registered subdued traffic volume growth which was mainly attributed to the expressway’s lane-widening works, while the Penang Bridge recorded negative growth following the opening of the Second Penang Bridge on March 1, 2014. Traffic volume on the MSSL remained stable, notwithstanding the 75% increase in vehicle entry permit fees on foreign-registered cars entering Singapore from August 2014. This was partly due to the commencement of tolling operations on the Eastern Dispersal Link Expressway, the highway connecting the Sultan Iskandar Customs, Immigration and Quarantine Complex in Johor Bahru to the southern route of the NSE. This has diverted some traffic volume to the MSSL.

In 2013, PLUS Berhad recorded a revenue of RM3,246 million (2012: RM3,046 million) with a pre-tax profit of RM34.4 million (2012: pre-tax losses of RM4.5 million), in line with the traffic performance of its concession assets. In 9M2014, PLUS Berhad reported a toll revenue of RM2,462 million against a projected revenue of RM3,322 million for the full year 2014. The company’s available cash balances (9M2014: RM3,066 million; 2013: RM3,791 million) have afforded PLUS Berhad the ability to make higher redeemable convertible unsecured loan stocks (RCULS) coupon payments than the projected annual RM335 million payment (2014: RM600 million; 2013: RM750 million), having complied with its covenanted post-distribution finance service cover ratio of 2.00 times. The payments, coupled with high amortisation charges of intangible assets and profit payments on the sukuk, have widened PLUS Berhad’s accumulated losses to RM1,067 million in 2013 (2012: RM343 million) resulting in lower shareholders’ funds and a higher leverage ratio as measured by its debt-to-equity (DE) ratio of 13.1 times (2012: 10.0 times). Although PLUS Berhad is not required to maintain a DE ratio covenant, the company’s leverage is deemed high for its standalone rating.

The stable outlook is premised on MARC’s expectations of continued satisfactory traffic performance of PLUS Berhad’s concession assets; that PLUS Berhad should continue to meet its obligations comfortably and the company is taking sufficient measures to improve its overall metrics to be in line with its standalone rating.

Contacts: Noor Izyani Saad, +603-2082 2256/ izyani@marc.com.my; David Lee, +603-2082 2255/ david@marc.com.my.

January 28, 2015

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