FW: RAM Ratings reaffirms rating of Bright Focus' sukuk, maintains negative outlook

 

Published on 11 Jan 2018.

RAM Ratings has reaffirmed the AA2/Negative rating of Bright Focus Berhad’s (Bright Focus) RM1.35 billion Sukuk Musharakah (2014/2031). The negative outlook has been retained, given that Bright Focus’s subsidiary, Maju Expressway Sdn Bhd (MESB or the Company) continued to register higher-than-expected operations and maintenance (O&M) expenses in 2016 and 2017. The reaffirmation of the rating is premised on the stronger-than-anticipated traffic performance of the Maju Expressway (MEX), which led to healthy cash generation of MESB, thereby translating into a projected finance service coverage ratio (FSCR, with cash balances, post-distribution) of at least 2.25 times throughout the tenure of the Sukuk.

In 2016, MESB faced unexpected operational costs stemming from works to strengthen river structures and slopes along the MEX, as well as higher maintenance and administrative expenses. The Company’s O&M costs reduced slightly in 2017, though still higher than our projection. The sukuk rating may come under pressure, should future O&M expenses come in higher than expected to the extent that Bright Focus’ minimum FSCR is weakened.

In the meantime, the MEX continues to benefit from a favourable alignment, serving the commercial centres of Kuala Lumpur (KL), Putrajaya, Cyberjaya and KL International Airport. Average daily traffic (ADT) at the Putrajaya and Salak Selatan toll plazas registered a steady 113,217 vehicles in 2016 despite a toll-rate hike in October 2015. ADT on the MEX – including the Seri Kembangan Link (SK Link) which commenced tolling in January 2016 – maintained its healthy uptrend in 11M 2017, climbing 6.7% y-o-y to 142,462 vehicles. Looking ahead, ADT is anticipated to average 136,400 vehicles over the next 5 years as we expect some traffic contraction following the steep tariff hikes slated for 2018. 

As with other toll-road concessionaires, Bright Focus and MESB are inherently exposed to regulatory and single-project risks. Any non-monetary compensation for non-revision of toll rates may exert downward pressure on the sukuk rating, especially given the MEX’s steep tariff increments.

 

Analytical contact
Chin Wynn, CFA
(603) 7628 1170
chinwynn@ram.com.my

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