FW: RAM Ratings reaffirms AA2/Stable rating of Kesas' sukuk

 

Published on 27 Oct 2017.

RAM Ratings has reaffirmed the AA2/Stable ratings of Kesas Sdn Bhd’s (the Company) RM735 million Sukuk Musharakah IMTN (2014/2023). The reaffirmation of the rating is based on our expectation that the Company will maintain its strong debt-servicing aptitude, underpinned by the Shah Alam Expressway’s (the SAE or the Expressway) mature traffic profile.

While the SAE benefits from its strategic alignment that straddles densely populated areas, the Expressway has been experiencing a stronger-than-expected wave of commuter migration to public transportation. This follows the commencement of the LRT extensions, compounded by the availability of alternatives, including toll-free routes. The SAE’s average daily traffic (ADT) was unchanged at 341,148 vehicles in FY Jul 2017 (FY Jul 2016: 341,179 vehicles). We expect its ADT to remain healthy throughout the tenure of the Sukuk, although we remain cognisant of the longer-term impact from its 2 scheduled toll-rate hikes (+25% to RM2.50 in 2018 and +20% to RM3.00 in 2021) and the concurrent development of alternative routes as well as public transportation. The Expressway’s ADT is projected to average 242,000 vehicles throughout the tenure of the Sukuk (base case: 395,000 vehicles). 

Based on our sensitivities, the Company is expected to achieve a healthy average annual pre-financing cashflow of RM167 million. This translates into a strong minimum finance service coverage ratio (FSCR) (without cash balances) of 1.16 times and FSCR (with cash balances, post-distribution) of 2.25 times throughout the remaining tenure of the Sukuk. We have assumed that the Company will adhere to its financial covenants throughout the tenure of the Sukuk (i.e. on a forward-looking basis, as opposed to only in the year of assessment). As with most concession-related projects, Kesas is inherently exposed to regulatory and single-project risks. 

 

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

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