RAM Ratings has assigned a preliminary AA2/Stable rating to Kesas Sdn Bhd’s (Kesas or the Company) proposed RM735 million IMTN (proposed Sukuk).

Published on 30 September 2014

RAM Ratings has assigned a preliminary AA2/Stable rating to Kesas Sdn Bhd’s (Kesas or the Company) proposed RM735 million IMTN (proposed Sukuk). Concurrently, the AA3/Stable rating of its RM800 million Al-Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS) has been reaffirmed. Kesas is the toll concessionaire for the 35-km Shah Alam Expressway (the SAE) linking the Kuala Lumpur-Seremban Highway in the east and Pandamaran in the west.
The assigned rating and rating reaffirmation continue to reflect the SAE’s strategic alignment and robust traffic profile as well as Kesas’ strong debt-servicing aptitude.
Following the Company’s toll restructuring, as announced on 15 January 2013, Kesas recently inked its Fifth Supplemental Concession Agreement (CA) with the Government on 18 July 2014, which entails a revision of its toll rates and an extension of its concession. Kesas is simultaneously expected to seek government approval to undertake a refinancing exercise via the issuance of the proposed Sukuk, to facilitate the early redemption of its outstanding financial obligations and to fund future capex and working capital.
As at end-March 2014, the SAE maintained a commendable traffic growth, registering average daily traffic of 310,422 vehicles (+6.8% y-o-y), largely supported by its lowered toll rate. That said, we expect traffic growth to moderate subsequent to the completion of the extension of the LRT line (expected in 2017) that runs parallel and perpendicular to the SAE.
Supported by its steady traffic potential, Kesas is expected to generate an average annual pre-financing cashflow of about RM213 million per annum over the tenure of the proposed Sukuk, which will result in an annual finance service coverage ratio (FSCR) (with cash balances, post-distribution) of a minimum 2.25 times. Our assessment assumes that Kesas will prioritise its debt repayment ahead of any distributions to its shareholders. The differential between the ratings of the BaIDS and the proposed Sukuk, meanwhile, is premised on the more stringent terms of the latter which require Kesas to register a FSCR of 2.25 times (with cash balances, post-distribution); the FSCR in respect of the BaIDS is set at 2 times.
As with other toll-road projects, the Company is inherently exposed to regulatory and single-project risks. While the terms of the CA provide for monetary compensation should toll rates not be increased, we highlight that compensation in the past has been made in both monetary and non-monetary form. In the event of a termination or expropriation under the CA, the Sukuk holders are protected via payments from the Government to Kesas which will be deposited into the Company’s Revenue Account (operated by the facility agent and forms part of the security arrangement of the proposed Sukuk). The payment is more than sufficient to cover the liabilities owed to the Sukuk holders.

Media contact
Chinthamani Thanneermalai
(603) 7628 1013
chinthamani@ram.com.my