MARC AFFIRMS AAIS RATING ON ANIH BERHAD’S RM2.5 BILLION ISLAMIC SECURITIES

Sep 29, 2014 -

MARC has affirmed the AAIS rating on toll road concessionaire ANIH Berhad's (ANIH) RM2.5 billion Senior Sukuk Musharakah Programme (Sukuk Programme) with a stable outlook. The affirmed rating continues to incorporate ANIH’s overall stable traffic performance of its matured toll road concessions namely Kuala Lumpur-Karak Highway (KL-Karak), Phase 1 of the East Coast Expressway (ECE1) and the Kuala Lumpur-Seremban Expressway (KL-Seremban), adequate cash flow coverage from cash flow generated from its toll operations, as well as the subordination of RM620.0 million unrated Junior Bonds that allows the toll operator some leeway to withstand stresses. The rating is constrained by sensitivity of ANIH’s cash flows to scheduled toll hikes and traffic volume growth, and its high leveraged position.

For the financial year ended March 31, 2014 (FY2014), ANIH registered subdued traffic volume growth due partly to the maturity profile of two of its three toll roads namely KL-Karak and KL-Seremban, and partly attributable to the closure of the theme park Resorts World Genting since September 2013, a popular destination that is commonly accessed through the KL-Karak. Traffic volume on the KL-Karak remained flat at 111,802 passenger car units per day (pcu/day) (FY2013: 111,952 pcu/day), registered slower traffic growth of 4.4% on the ECE1 to 20,225 pcu-km/day in FY2014 (FY2013: 10.5%; 19,378 pcu-km/day), and achieved a slightly higher traffic growth of 1.8% on the KL-Seremban to 131,456 pcu/day in FY2014 (FY2013: 0.1%; 129,088 pcu/day). Nonetheless, the overall traffic volume registered by these highways in FY2014 were broadly in line with projections except for the ECE1 which exceeded projected volume by 9.7%.

MARC notes that ANIH’s net toll revenue increased marginally year-on-year in FY2014 to RM357.0 million and remains comparable to FY2014’s projected revenue of RM350.7 million. ANIH continued to register losses before tax of RM21.2 million in FY2014 (FY2013: negative RM21.2 million) while leverage ratio stood marginally higher at 3.00 times (FY2013: 2.92 times). The company’s operating cash flow (CFO) rose 11.7% year-on-year to RM251.0 million in FY2014 (FY2013: RM224.7 million), contributing to an increased cash balance of RM327.4 million as at end-FY2014 (FY2013: RM252.2 million). Debt servicing capacity remains strong with forward-looking finance service coverage ratio (FSCR) of 2.74 times providing a comfortable margin against the projected FSCR of 2.35 times and covenanted FSCR of 1.75 times.  

ANIH’s rating remains contingent on timely implementation of scheduled toll hikes for both the KL-Karak and the ECE1 in 2015 and 2020. The first sukuk repayment of RM50 million is due in November 2014 with subsequent annual repayments steadily rising from RM100 million in 2016 to RM230 million at the end of the tenure in 2029. Accordingly ANIH’s toll revenues would need to increase to meet its annual debt service payment obligations. The next toll hike is on January 1, 2015; the likelihood of deferment is considered low given the reasonable time interval of eight years since the last hike in 2007. However should the toll hikes not implemented as scheduled or the quantum of toll hike is lower than expected, MARC expects some form of compensation from the government to the toll concessionaire. Assuming the toll hikes are implemented as scheduled, ANIH’s projected base case FSCR (incorporating cash balances) is projected at an average 3.27 times with a minimum level of 2.51 times in FY2015. Any downside risks due to variations to the concession agreements for the KL-Karak and the ECE1 are expected to be moderated by monetary compensation from the government, considering that both concession agreements had been restructured and tax exemptions granted.

MARC’s sensitivity analysis reveals that ANIH’s cash flows can withstand moderate traffic underperformance as its FSCR remains in compliance with the covenanted FSCR of 1.75 times even under MARC’s projected worst case scenario. MARC considers the risk of significant traffic underperformance to be remote as ANIH’s toll road concessions have exhibited stable historical traffic performance and future traffic growth for the KL-Karak and the ECE1 may be boosted by Genting’s Integrated Tourism Plan and the second phase of the East Coast Expressway. In addition, the coupon deferral feature of ANIH’s Junior Bonds, which allows unpaid coupons to be accumulated and paid on the maturity of the respective tranche of the bonds if the minimum 2.50 times post-distribution FSCR is not met, provides some buffer should traffic performance be significantly below projections.

The stable outlook continues to hinge on MARC’s assumptions of a stable traffic profile for the KL-Karak and the ECE1 as well as timely implementation of the scheduled toll increases. ANIH’s senior rating or outlook could come under pressure if its FSCR erodes materially as a result of untimely toll adjustments and there is no compensation from the government.

Contacts:

Ng Suk Yee, +603-2082 2272/ sukyee@marc.com.my;

David Lee, +603-2082 2255/ david@marc.com.my