RAM Ratings has reaffirmed the AA2 rating of Projek Smart Holdings Sdn Bhd’s (Smart Holdings or the Company) IMTN Facility of up to RM330 million in nominal value (2015/2032) (the Sukuk). Concurrently, we have revised the rating outlook to

Published on 16 December 2016

RAM Ratings has reaffirmed the AA2 rating of Projek Smart Holdings Sdn Bhd’s (Smart Holdings or the Company) IMTN Facility of up to RM330 million in nominal value (2015/2032) (the Sukuk). Concurrently, we have revised the rating outlook to negative from stable owing to the projected traffic volume reduction of the Stormwater Management and Road Tunnel Project (Smart Tunnel or the Tunnel), due to the risk of a prolonged delay in traffic recovery post-toll rate hike.

Subsequent to a toll rate hike on 15 October 2015, the Smart Tunnel saw a 7.01% m-o-m knee-jerk dip in traffic in November – which we typically observe for toll hikes – albeit rebounding a slight 3.34% m-o-m in December. However, monthly traffic volume in the Tunnel had continued to trend downwards between February and September 2016, partly due to temporary road improvement works undertaken by the Pemudah Traffic Task Force (Pemudah) and Kuala Lumpur City Hall (DBKL). Average daily traffic had declined 18.7% y-o-y to 24,960 vehicles as at end-September 2016, as compared to our earlier expectation of 34,500 vehicles for full-year 2016.

Meanwhile, the reaffirmation of the rating is based on our view that Smart Holdings’ debt-servicing ability is likely to continue to hold up in the short term, with a minimum finance service coverage ratio (with cash balances, post-distribution) of 2.25 times. Our analysis assumes traffic will remain subdued in the near term. Any negative deviation may put pressure on the rating. However, we have factored a higher growth of 2%-6% per annum over the longer-term (higher in earlier years) driven by the Tun Razak Exchange and Bandar Malaysia developments on either end of the Tunnel.

Smart Holdings is the sole shareholder of Syarikat Mengurus Air Banjir dan Terowong Sdn Bhd (SMART), which in turn is the concessionaire for the Smart Tunnel comprising the Stormwater Channel and Motorway, under a construction and concession agreement spanning 40 years from 1 January 2003.

As with other toll-road concessionaires, SMART is inherently exposed to regulatory and single-project risks.

Analytical contact                                            Media contact
Adeline Poh                                                       Padthma Subbiah
(603) 7628 1021                                                (603) 7628 1162
adeline@ram.com.my                                       padthma@ram.com.my