FW: RAM Ratings reaffirms Litrak's AA2/Stable sukuk ratings

 

Published on 27 Sep 2017.

RAM Ratings has reaffirmed the AA2/Stable ratings of Lingkaran Trans Kota Sdn Bhd’s (Litrak or the Company) Sukuk Musharakah IMTN I and II Programmes (2008/2023) with a combined value of up to RM1.45 billion (collectively referred to as the Sukuk). The reaffirmation of the ratings is based on our expectation that the Company will maintain its strong cashflow generation, underpinned by Lebuhraya Damansara-Puchong’s (LDP or the Highway) mature traffic profile.

Even though LDP benefits from its strategic alignment through major townships, it has been impacted by stronger-than-expected migration to public transportation. This was subsequent to Light Rail Transit extensions and the Sungai Buloh-Kajang Mass Rapid Transit Line becoming operational. This had caused LDP’s average daily traffic (ADT) to decline 2.86% in FY Mar 2017 and a further 2.34% in the first 3 months of FY Mar 2018. “While we expect the Highway’s traffic profile to stay healthy in supporting its debt-servicing capability, we remain cognisant of the longer-term impact of another scheduled toll rate hike (+47% to RM3.10) and the concurrent development of alternative routes and public transportation projects,” notes Davinder Kaur Gill, RAM Ratings’ Co-Head of Infrastructure and Utilities Ratings. The Highway’s ADT is anticipated to average 387,000 vehicles throughout the tenure of the Sukuk under our stressed case vis-à-vis actual ADT of 453,970 vehicles in FY Mar 2017. 

Based on our sensitivities, the Company’s finance service coverage ratios (FSCRs) (with cash balances, post-distribution on payment dates) are envisaged to come in at a minimum of 2 times throughout the Sukuk’s tenure. While Litrak’s projected annual average pre-financing cashflow of RM212 million should sufficiently meet its financial obligations, it is crucial that cash retention is prioritised beginning fiscal 2018, considering lumpy principal repayments ahead and given that the Company’s FSCR (without cash balances) will fall below one time in certain years. Any distribution beyond our expectation should be supported by traffic and cashflow outperformance.

As with most concession-related projects, Litrak is inherently exposed to regulatory risk as its revenue is dependent on the payment of compensation by the government in the absence of a scheduled toll rate increase. On that note, there have been delays in the receipt of compensation since 2016. While the Company can withstand a deferment of compensation in the near term, any prolonged delay without an ensuing toll-rate adjustment will exert downward pressure on the ratings. Furthermore, given that Litrak’s income is derived from a specific project, the Company is vulnerable to single-project risk, although it is unlikely that the entire stretch of LDP will be disrupted at any particular time.

 

Analytical contact
Nurhayati Sulaiman
(603) 7628 1040
yati@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my