RAM Ratings has reaffirmed the AAA(bg)/Stable rating of EKVE Sdn Bhd’s (EKVESB or the Company) Guaranteed Sukuk Murabahah Facility of up to RM1,000 million in Nominal Value (the

Published on 03 Apr 2017.

RAM Ratings has reaffirmed the AAA(bg)/Stable rating of EKVE Sdn Bhd’s (EKVESB or the Company) Guaranteed Sukuk Murabahah Facility of up to RM1,000 million in Nominal Value (the Sukuk). The rating reflects the irrevocable and unconditional guarantees extended by AAA-rated Maybank Islamic Berhad and Bank Pembangunan Malaysia Berhad. The guarantees enhance the Sukuk’s rating beyond the Company’s stand-alone credit strength.

The construction of the East Klang Valley Expressway (EKVE or the Project or the Expressway) had been set back by issues such as delays in obtaining site possession and holdups in securing approvals from local authorities which had held up the commencement of work for sections of the Project. That said, EKVESB has represented that the Project is on track to be completed by 2019 within the budgeted cost of RM1.55 billion. We have, however, factored in a 6-month delay in our projections, with a 5% cost overrun as a conservative measure (excluding land acquisition cost overruns).

The Project had also seen land acquisition costs escalate beyond the Government of Malaysia’s (GoM) allocation of RM360 million for land acquisition as stipulated in its concession agreement (CA) with EKVESB. This was mainly because additional plots of land previously identified as state government land have now been designated as privately owned land. The Company is financing the heftier land cost via an equity injection pumped in as part of the project costs. Should the GoM not approve the RM150 million additional land acquisition costs, the Company would need to fund it via advances from its shareholder or procure additional external loans.

Factoring in the above concerns into RAM’s sensitivity analysis of construction- and traffic-related risks, including additional cost incurred for land acquisition of about RM150 million, EKVESB may need to refinance its financial obligations by 2019 (or by 2021 if there are no cost overruns and delays) in the absence of financial support from its shareholder. The long remaining tenure of the concession could provide room for a refinancing exercise. Further, Ahmad Zaki Resources Berhad, EKVESB’s sole shareholder, has provided an undertaking to cover any potential cost overruns (including higher-than-stipulated land acquisition costs) in order to meet the financial covenants, and to assist the Company in meeting its financial obligations under the Sukuk.

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

EKVESB is the concessionaire of the Expressway, a 36.16-km closed-toll system which will start from Sungai Long in Kajang and terminate at Ukay Perdana in Ampang, under a 50-year CA with the GoM.

Analytical contact

Adeline Poh

(603) 7628 1021

adeline@ram.com.my

Media contact

Padthma Subbiah

(603) 7628 1162

padthma@ram.com.my