RAM Ratings reaffirms Seafield Capital’s sukuk rating at AA2

Published on 17 June 2011

RAM Ratings has reaffirmed the AA2 rating of Seafield Capital Berhad’s (Seafield Capital) RM1.5 billion Sukuk Musharakah Programme (2009/2029) (the Sukuk), the rating has a stable outlook. Our analysis is based on the assumption that up to RM1.1 billion will be drawn down under the Sukuk. We highlight that the aggregate nominal value of the Issuer’s indebtedness can only exceed the aggregate principal amount of RM1.1 billion if it does not result in a rating downgrade for any outstanding Sukuk. Notably, Seafield Capital has to date drawn down RM950 million of the Sukuk.

Seafield Capital is a trust-owned, special-purpose company through which Expressway Lingkaran Tengah Sdn Bhd (ELITE) issued the Sukuk to meet the Company’s funding requirements. ELITE is the concessionaire for the 63-km North-South Expressway Central Link, the Kuala Lumpur International Airport (KLIA) Extension Link and the Putrajaya Link (collectively referred to as “the Expressways”).

Under the transaction structure, the Sukuk holders’ recourse to ELITE is recognised via an irrevocable and unconditional Purchase Undertaking Deed between Seafield Capital and ELITE. Through this document, ELITE (as the obligor) will undertake to purchase the trust assets from Seafield Capital upon the occurrence of certain events, at a price equal to the Exercise Price. Given the strong credit link between these parties, RAM Ratings views them in aggregate from a credit perspective. The rating of the Sukuk is, therefore, a reflection of ELITE’s credit risk.

The rating is supported by ELITE’s strong business profile underscored by the Expressways’ strategic alignment as the primary link between the New Klang Valley Expressway (at Shah Alam) and KLIA to the North-South Expressway (NSE) (at the Nilai Interchange). In 2010, traffic volume leaped 11.36% year-on-year (y-o-y) to 1,605.27 million passenger car unit kilometre (PCU-km) (2009: 1,441.52 million PCU-km). The up-tick in traffic volume continued to be supported by flow-through traffic from the NSE, which accounted for 42% of the total traffic plying the Expressways; traffic on the NSE increased 7.68% (y-o-y) in 2010.

The excellent operating track record of the Expressways is expected to translate into strong cashflow generation. Based on RAM Ratings’ analysis, ELITE is expected to maintain its commendable debt-servicing aptitude with a robust projected minimum finance service cover ratio (FSCR) on principal repayment date (with cash balances, post-distribution) of 2.03 times, this is based the maturity profile of the outstanding Sukuk of RM950 million. In assessing ELITE’s annual distributions to its shareholders, RAM Ratings’ cashflow analysis assumes ELITE will adhere to its financial covenants throughout the tenure of the Sukuk (i.e. on a forward looking basis as opposed to the year of assessment only). Such financial covenants include compliance with the Finance Service Reserve Account and Government Loan Service Reserve Account requirements as well as the post-distribution FSCR of 2 times.

Meanwhile, the rating is moderated by the uncertainty of ELITE’s financial profile given that the transaction features of the Sukuk affords Seafield Capital the flexibility of issuing additional Sukuk and incurring other borrowings (which in aggregate shall not exceed the principal amount of RM1.5 billion and is subjected to a reduction schedule). This is unlike other typical project-financed structures where the level, terms and repayment profile of debt is fixed at the outset. At the same time, the rating also remains moderated by regulatory and single-project risks.

Media contact
Lee Chai Len
(603) 7628 1192
chailen@ram.com.my