RAM Ratings has maintained the developing Rating Watch on MRCB Southern Link Berhad’s (MRCB Southern Link or the Company) RM845 million Secured Senior Sukuk (2008/2025) (Senior Sukuk) and RM199 million Junior Sukuk (2008/2027) (Junior Sukuk).

Published on 18 June 2014

RAM Ratings has maintained the developing Rating Watch on MRCB Southern Link Berhad’s (MRCB Southern Link or the Company) RM845 million Secured Senior Sukuk (2008/2025) (Senior Sukuk) and RM199 million Junior Sukuk (2008/2027) (Junior Sukuk). At the same time, we have reaffirmed the ratings of the Senior and Junior Sukuk at BBB3 and BB1, respectively. The differential between the ratings of the Senior and Junior Sukuk reflects the Junior Sukuk’s subordinated status from a legal perspective.
In an Interim Agreement executed on 27 November 2012, the Government had agreed to make monthly payments of RM11 million to MRCB Southern Link (effective 1 May 2012) until a full and final settlement is reached in relation to the Government’s acquisition of the Eastern Dispersal Link Expressway (EDL or the Highway). The developing Rating Watch has been maintained pending either a government buyout or tolling commencement.
While we recognise the Government’s ongoing efforts to address MRCB Southern Link’s inability to collect toll on the EDL, we do not expect the monthly payments of RM11 million to sufficiently support the Company’s debt obligations. The Company is expected to face a shortfall in June 2017, and will be unable to meet the minimum balance required in its Senior Sukuk finance service reserve account by June 2015. The ratings of the sukuk will, hence, face downward pressure without an upward revision of monthly cash receipts.
On the other hand, tolling based on the terms of the concessionaire’s Concession Agreement will provide the ratings with an upside potential. While tolling is a credit positive, any rating movement will hinge on the EDL’s actual traffic performance; we understand that tollable traffic on the Highway continues to be below our initial expectation. The Interim Agreement is expected to be rescinded upon commencement of tolling.
MRCB Southern Link is a funding conduit for the 8.1-km EDL in Johor Bahru.
RAM’s Rating Watch highlights a possible change in an issuer's debt rating. It focuses on identifiable events such as mergers, acquisitions, regulatory changes and operational developments that place a rated debt under special surveillance by RAM. In a broader sense, it covers any event that may result in changes in the risk factors relating to the repayment of principal and interest.
Issues will appear on RAM's Rating Watch when some of the above events are expected to or have occurred. Appearance on RAM's Rating Watch, however, does not inevitably mean that the rating will be changed. It only means that a rating is under evaluation by RAM and a final affirmation is expected to be announced. A "positive" outlook indicates that a rating may be raised while a "negative" outlook indicates that a rating may be lowered. A “developing” outlook refers to those unusual situations in which future events are so unclear that the rating may potentially be raised or lowered.

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