RAM Ratings has reaffirmed the ratings of Tranche 1 and Tranche 2 of West Coast Expressway Sdn Bhd’s (West Coast or the Company) RM1 billion Guaranteed Sukuk Murabahah Programme (2015/2036) at AAA(bg)/Stable and AAA(fg)/Stable, respectively.

Published on 20 July 2016

RAM Ratings has reaffirmed the ratings of Tranche 1 and Tranche 2 of West Coast Expressway Sdn Bhd’s (West Coast or the Company) RM1 billion Guaranteed Sukuk Murabahah Programme (2015/2036) at AAA(bg)/Stable and AAA(fg)/Stable, respectively. The ratings reflect irrevocable and unconditional Kafalah extended by AAA-rated Bank Pembangunan Malaysia Berhad and Danajamin Nasional Berhad, which enhance the Sukuk’s ratings beyond West Coast’s stand-alone credit strength.

The construction of the West Coast Expressway (WCE or the Project or the Expressway) is being undertaken by IJMC-KEB Joint Venture, a consortium comprising IJM Construction Sdn Bhd and Kumpulan Europlus Berhad (KEuro). Construction progress of the WCE stood at 20.31% as at end-May 2016, behind the scheduled 25.93%, due to delays in the land-acquisition process. Nonetheless, construction of the most challenging sections of the Expressway, with which IJM Construction has been entrusted, is ahead of schedule. West Coast expects to meet the scheduled completion date by shortening the Project’s timeline and accelerating physical works once land acquisition for the entire stretch of the Expressway is completed. While concurrent construction and project management of a 193-km stretch is deemed challenging, we derive comfort from IJM Construction’s track record in building roads.

West Coast’s shareholders – KEuro and Road Builder (M) Holdings Bhd (RBH) – have irrevocably and unconditionally undertaken to provide financial support to ensure the completion of the WCE, and up to RM400 million under a cash-deficiency undertaking to cover any shortfall that the Company faces in meeting its financial obligations. “Although the cash-generating ability of KEuro remains to be seen, we draw comfort from the financial support that can come from the other shareholder, RBH, a wholly-owned subsidiary of IJM Corporation Berhad,” highlights Chong Van Nee, RAM’s Co-Head of Infrastructure & Utilities Ratings.

Based on RAM’s sensitised cashflow analysis, West Coast would face a shortfall in meeting its profit payments in August 2018 and in completing construction, necessitating shareholder support during construction. The Company expects to refinance a lumpy repayment of a syndicated term loan for the Project by FY Mar 2028. On this note, the long remaining life of the concession (at least 36 years) provides room for such an exercise, and West Coast’s cashflow over the concession period is envisaged to be able to support all its debt repayments. In addition, a government support loan provided for the Project has been structured on repayment terms that do not constrain West Coast’s financials.

As with most concession-related projects, the Company is exposed to regulatory and single-project risks.

Media contact
Chin Wynn, CFA
(603) 7628 1170
chinwynn@ram.com.my