FW: RAM Ratings reaffirms Besraya's AA3 sukuk rating, revises outlook to negative

Published on 20 Dec 2017.

RAM Ratings has reaffirmed the rating of Besraya (M) Sdn Bhd’s (Besraya or the Company) RM700 million Sukuk Mudharabah Issuance Facility (2011/2028) at AA3, but revised the outlook to negative from stable. The revision of the rating outlook reflects our concern that the Company’s recent dividend distribution of RM70 million in fiscal 2018 to its shareholder and the construction of Kuchai Link 2 (or Kuchai overpass) which will cost RM50 million over the next 3 years could cause the Company’s minimum finance service coverage ratio (FSCR, with cash balances, post-distribution) to come in below the 2-time threshold, under our sensitised case, for AA3-rated transactions on sukuk payment dates between fiscal 2020 and 2023. During this period, annual repayments of the sukuk will be at their peak. It is crucial that cash retention is henceforth prioritised until the completion of the Kuchai overpass, and traffic normalises following the next toll-rate hike (scheduled for 1 January 2018). The sukuk rating may be downgraded in the absence of any outperformance of RAM’s sensitised cashflow assumptions over the next few years, which may result in a continuous dip in the Company’s FSCR to below 2 times. Continued dividend payments may also put pressure on the rating.

The reaffirmation of the rating is based on Besraya’s still steady cashflow coverage, underpinned by the established traffic profile of the 16.6-km Sungai Besi Highway (SBH) and the 12.3-km Besraya Eastern Extension (BEE) (collectively known as the Highways). In FY Mar 2017, the Highways registered average daily traffic (ADT) growth of 2.2% y-o-y, largely fuelled by steady growth in the flow of traffic from the Loke Yew toll plaza of 10% y-o-y. That said, the Mines toll plaza’s ADT which has yet to recover since the last toll-rate hike in October 2015, continued to contract marginally in 5M FY Mar 2018. Accordingly, we have assumed lower traffic growth of 0.5% and a contraction of 2.8% on the Highways in FY Mar 2018 and FY Mar 2019, respectively, following the next toll rate hike, due on 1 January 2018. Thereafter, traffic growth is anticipated to recover at an average of 1.7% per annum throughout the remaining tenure of the Sukuk.

As with other toll-road projects, Besraya is inherently exposed to regulatory and single-project risks. The Highways’ next and final toll-rate hike is expected in 2018. In the event that the hike is deferred, Besraya’s debt-servicing capacity will be compromised should it not be fully compensated in cash.

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

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