Published on 24 July 2015
RAM Ratings has reaffirmed the ratings of
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 BB1 and B1,
respectively. The negative outlook on both ratings signals the potential
for further deterioration in the ratings as a result of a weaker
cashflow position should there be any delay in its refinancing exercise.
The differential between the ratings of the Senior and Junior Sukuk
reflects the Junior Sukuk’s subordinated status from a legal
perspective.
MRCB Southern Link is a funding conduit for the 8.62-km Eastern Dispersal Link (EDL) in Johor Bahru.
The reaffirmation of the ratings is premised on the
inroads that the Company has made with a debt-refinancing exercise. If
the Company fails to complete the refinancing exercise by end-2015, a
default on the Junior Sukuk is expected at end-December 2016, and a
default on the Senior Sukuk at end-June 2019. As such, the ratings of
the sukuk will face downward pressure if the refinancing exercise is not
concluded by the end of the year. Elsewhere, as an interim measure to
stave off a liquidity crunch, the Company procured bank guarantees (BG)
amounting to RM90 million on 27 January 2015 to substitute the cash
reserves in its finance service reserve accounts (FSRAs). As such, the
Company was able to utilise these cash reserves for ongoing debt
repayment as well as to support working-capital requirements.
Since the commencement of tolling on the EDL on 1
August 2014, the Expressway’s monthly traffic volume has been volatile
owing to toll-rate hikes on the JB-Singapore Causeway and the higher
Vehicle Entry Permit fee imposed by the Singapore government. Compared
to the last 5 months of 2014, the annualised average daily traffic (ADT)
on the EDL had declined 1.7% in the first 5 months of 2015. We
anticipate a minor contraction in the volume of traffic on the EDL for
2015. Thereafter, we expect ADT growth to recover to between 2% and 3%
per annum in 2016 and 2017, respectively. Elsewhere, the VEP fee planned
by the Government, which has yet to be formalised, may negatively
impact traffic volume on the EDL.
Given the initial underperformance of traffic on the
EDL in 2014 subsequent to the imposition of toll charges and our
expectations of future traffic, the Company is envisaged to face
liquidity stress. MRCB Southern Link will have to draw down the Junior
Sukuk Special Reserve Account BG (of RM20.43 million) by end-2015 to
provide the Company with temporary liquidity respite.
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