FW: RAM Ratings reaffirms AA2/Stable rating of Kesas’ sukuk

Published on 30 Nov 2018.

RAM Ratings has reaffirmed the AA2/Stable ratings of Kesas Sdn Bhd's (the Company) RM735 million Sukuk Musharakah IMTN (2014/2023). The reaffirmation of the rating is based on our expectation that the Company will maintain its strong debt-servicing aptitude, underpinned by the mature traffic profile of the Shah Alam Expressway (the SAE or the Expressway). 

The Expressway's traffic volume has been declining, with its average daily traffic (ADT) contracting to 326,872 vehicles in FY Jul 2018 (FY Jul 2017: 341,148 vehicles), albeit within RAM's expectation. This is largely attributable to the reduction in traffic volume at the Awan Besar/Kecil toll plaza, following the commencement of operations for the Light Rail Transit (LRT) extension, the road enhancement at the Jalan Puchong-Sungai Besi interchange and the abolishment of toll collections along Federal Highway Route 2 (FHR2). On the other hand, the cancellation of the KL-Klang Bus Rapid Transit (BRT) busway and the delay in completion date of the LRT 3 project to 2024 will relieve the downward pressure on the SAE's future traffic performance. 

Taking into account the potential traffic diversion to competing infrastructure, we envisage a further decline in the Expressway's traffic volume if its toll rate increases over the next few years (+25% to RM2.50 due in 2016 is assumed to be delayed to 2020 and +20% to RM3.00 in 2021). Despite a lower projected ADT in our stressed sensitivity tests, however, the Company's debt-servicing capability remains intact. 

While the abolishment of toll collections remains uncertain in the medium term, we believe that the GoM will balance its expropriation plans against any potential implication on the debt capital market. On this note, Kesas has been promptly receiving compensation payments from the GoM for its inability to raise toll rates as per its CA. We believe the GoM will continue to honour the compensation arrangement in the event of non-revision. 

As with most concession-related projects, Kesas is inherently exposed to single-project risk, although the entire stretch of the SAE is unlikely to be disrupted at any particular time.

 

Analytical contact
Nurhayati Sulaiman
(603) 7628 1040
yati@ram.com.my

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