Tuesday, October 3, 2017

FW: RAM Ratings reaffirms West Coast Expressway's sukuk ratings

Published on 02 Oct 2017.

RAM Ratings has reaffirmed that 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 facilities extended by AAA-rated Bank Pembangunan Malaysia Berhad and Danajamin Nasional Berhad, which enhance the Sukuk’s credit standing beyond West Coast’s stand-alone credit strength.

The construction of the West Coast Expressway (WCE or the Project or the Expressway) is undertaken by a consortium comprising IJM Construction Sdn Bhd and WCE Holdings Bhd (WCE Holdings) – IJMC-KEB Joint Venture. As at end-August 2017, construction progress stood at 39.51% – behind the scheduled 47.01% or 4.23 months, mainly due to delays in land acquisitions. That said, the Company expects to meet the scheduled completion date by shortening the Project’s timeline and accelerating physical works. 

Owing to delays in securing land rights, the Project has seen land acquisition costs exceed the Government’s allocation of RM980 million. The Company plans to partially address the additional land costs via the utilisation of cost savings from project expenditure and other ancillary income. With some remaining private land yet to be acquired, any potential further land costs overruns will be funded via equity injection from its shareholders. 

Based on RAM’s sensitised cashflow analysis (which incorporates a 6-month delay, construction cost increases as well as land cost overruns), West Coast may need to rely on financial support to honor its financial obligations by August 2018 (or by February 2020 if there are no cost overruns and delays). The long tenure of the concession would also provide room for a refinancing exercise. Additionally, West Coast’s shareholders – WCE Holdings and Road Builder (M) Holdings Bhd – 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 short fall that the Company might face in meeting its financial obligations. 

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

 

Analytical contact
Ong Ju Laine
(603) 7628 1183
julaine@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

 

 

 

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