Published
on 03 Apr 2017.
RAM Ratings
has reaffirmed the AAA(bg)/Stable rating of EKVE Sdn Bhd’s (EKVESB or the
Company) Guaranteed Sukuk Murabahah Facility of up to RM1,000 million in
Nominal Value (the Sukuk). The rating reflects the irrevocable and
unconditional guarantees extended by AAA-rated Maybank Islamic Berhad and Bank
Pembangunan Malaysia Berhad. The guarantees enhance the Sukuk’s rating beyond
the Company’s stand-alone credit strength.
The
construction of the East Klang Valley Expressway (EKVE or the Project or the
Expressway) had been set back by issues such as delays in obtaining site
possession and holdups in securing approvals from local authorities which had
held up the commencement of work for sections of the Project. That said, EKVESB
has represented that the Project is on track to be completed by 2019 within the
budgeted cost of RM1.55 billion. We have, however, factored in a 6-month delay
in our projections, with a 5% cost overrun as a conservative measure (excluding
land acquisition cost overruns).
The Project
had also seen land acquisition costs escalate beyond the Government of
Malaysia’s (GoM) allocation of RM360 million for land acquisition as stipulated
in its concession agreement (CA) with EKVESB. This was mainly because
additional plots of land previously identified as state government land have
now been designated as privately owned land. The Company is financing the heftier
land cost via an equity injection pumped in as part of the project costs.
Should the GoM not approve the RM150 million additional land acquisition costs,
the Company would need to fund it via advances from its shareholder or procure
additional external loans.
Factoring
in the above concerns into RAM’s sensitivity analysis of construction- and
traffic-related risks, including additional cost incurred for land acquisition
of about RM150 million, EKVESB may need to refinance its financial obligations
by 2019 (or by 2021 if there are no cost overruns and delays) in the absence of
financial support from its shareholder. The long remaining tenure of the
concession could provide room for a refinancing exercise. Further, Ahmad Zaki
Resources Berhad, EKVESB’s sole shareholder, has provided an undertaking to
cover any potential cost overruns (including higher-than-stipulated land
acquisition costs) in order to meet the financial covenants, and to assist the
Company in meeting its financial obligations under the Sukuk.
As with
most concession-related projects, the Company is exposed to regulatory and
single-project risks.
EKVESB is
the concessionaire of the Expressway, a 36.16-km closed-toll system which will
start from Sungai Long in Kajang and terminate at Ukay Perdana in Ampang, under
a 50-year CA with the GoM.
Analytical
contact
Adeline Poh
(603) 7628
1021
Media
contact
Padthma
Subbiah
(603) 7628
1162
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