FW: RAM Ratings reaffirms AAA(bg) rating of EKVESB's sukuk

 

Published on 12 Jan 2018.

 

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 irrevocable and unconditional guarantees extended by AAA-rated Maybank Islamic Berhad and Bank Pembangunan Malaysia Berhad. EKVESB is the concessionaire of the East Klang Valley Expressway (EKVE or the Project or 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 concession agreement (CA) with the Government of Malaysia (GoM).

The construction of the EKVE continued to face delays owing to environmental and weather-related issues that are still hindering the construction progress of the Expressway. That said, EKVESB expects the Project to be completed within its original 48-month timeline, i.e., by September 2019, and within the RM1.55 billion budgeted cost. We have, however, factored a 1-year delay into our sensitised cashflow projections, with a 5% cost overrun as a conservative measure. Under such a situation, EKVESB’s sole shareholder, Ahmad Zaki Resources Berhad has provided an undertaking to cover any potential cost overruns (including higher-than-stipulated land acquisition costs) to enable EKVESB to meet its financial covenants, and to assist the Company in honouring its financial obligations under the Sukuk.

Land acquisition meanwhile is almost complete. However, acquisition costs have exceeded the GoM’s allocation of RM360 million, as stipulated in its CA with EKVESB, by RM150 million. The additional costs have been partially funded by additional shareholders’ equity (of RM70 million) with the remaining balance to be funded by savings from lower project financing costs (of up to RM80 million). 

Factoring in the construction- and traffic-related risks as well as additional land acquisition cost into our sensitivity analysis, EKVESB may need to refinance its financial obligations by 2020 in the absence of financial support from its shareholder. While EKVE will complete the Kuala Lumpur Outer Ring Road road network and provide better connectivity for north-south traffic in eastern parts of the Klang Valley, our view on the traffic volume remains subdued in view of the high initial toll rates as well as competition from the under construction Sungai Besi-Ulu Kelang Expressway and Klang Valley Mass Rapid Transit Sungai Buloh-Serdang-Putrajaya line. 

As with most concession-related projects, the Company is exposed to regulatory and single-project risks.

 

Analytical contact
Adeline Poh
(603) 7628 1021
adeline@ram.com.my

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