RAM Ratings revises KLBK's rating outlook to stable, reaffirms AA3 debt rating

RAM Ratings (16 May 2011): RAM Ratings has reaffirmed the AA3 rating of Konsortium Lebuhraya Butterworth-Kulim (KLBK) Sdn Bhd’s (KLBK or the Company) RM247 million Secured Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS). At the same time, the outlook on the rating has been revised from positive to stable. KLBK is the toll concessionaire for the 17-km Butterworth-Kulim Expressway (BKE or the Expressway).

The revision of the rating outlook is based on the fluidity of the ongoing negotiations between PLUS Expressways Berhad (PEB) and the Government, with regard to the concession agreement(s) that will supplement/replace all the existing ones governing the 4 domestic tolled roads under the PEB Group, including the BKE. RAM Ratings opines that the uncertainty arising from the ongoing discussions and the possibility of protracted negotiations preclude any upward rating action in the near term.

Meanwhile, the rating of the BaIDS remains supported by the BKE’s healthy and proven track record on traffic volume as well as its robust debt-servicing ability, along with the expectation that these will stay commendable.

In 2010, the BKE achieved its best growth rate in average daily traffic for the past decade. On average, 62,704 vehicles plied the Expressway daily last year, translating into a robust 8.90% year-on-year improvement (2009: +4.30%). Penang’s resuscitated economy, heightened economic activity within the Kulim Hi-Tech Park and the progressive development of residential areas along the BKE had contributed to the commendable performance. Going forward, the BKE is envisaged to exhibit healthy single-digit traffic growth, supported by the aforementioned factors.

We note that KLBK’s debt-protection measures remain intact, with strong finance service cover ratios (FSCRs) of 1.63 times (without cash balances) and 5.26 times (with cash balances, post-distribution) as at end-2010. Looking ahead, the Company is expected to register a minimum FSCR of 2.50 times (with cash balances, post-distribution) on principal repayment dates. In assessing KLBK’s ongoing annual distributions to its shareholders, RAM Ratings’ sensitised cashflow assumes that the Company will adhere to its financial covenants throughout the tenure of the BaIDS (i.e. on a forward-looking basis) as opposed to only the year of assessment. Such covenants include compliance with the aforesaid post-distribution FSCR and a debt-to-equity ratio of at least 70:30.

In the meantime, the rating remains moderated by regulatory risk that is inherent in all tolled-road projects, apart from single-project risk.

Full article: www.ram.com.my