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RAM Ratings reaffirms AAA(bg) rating of EKVE Sdn Bhd
Published on 29 Jan 2019.
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 setbacks in obtaining site possession and weather-related issues. This had necessitated the submission of a third construction work programme (CWP), which was approved by the Malaysia Highway Authority (MHA) in September 2018. Simultaneously, EKVESB was granted an extension of time of 315 days, with a new completion date of 20 July 2020 (previously 9 September 2019). While the Project is expected to be completed within the RM1.55 billion budgeted cost, we have factored a six-month delay into our sensitised cashflow projections, with a 5% cost overrun. Should this occur, EKVESB’s sole shareholder, Ahmad Zaki Resources Berhad, has undertaken to cover any potential cost overruns to enable the Company to meet its financial covenants, and to assist the Company in honouring its financial obligations under the Sukuk.
Incorporating construction and traffic-related risks into our sensitivity analysis, EKVESB may need to refinance its financial obligations by 2021 in the absence of financial support from its shareholder. Excluding construction-related sensitivities, however, the Company is expected to refinance its financial obligations by 2022. 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, its traffic volume will remain subdued, in our view, given high initial toll rates as well as competition from the Sungai Besi-Ulu Kelang Expressway (which is under construction) and Klang Valley Mass Rapid Transit Sungai Buloh-Kajang line.
As with most concession-related projects, the Company is exposed to regulatory and single-project risks.
Analytical contact
Chinthamani Thanneermalai
(603) 7628 1013
chinthamani@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
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Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad
