Published on 01 Nov 2019.
RAM Ratings has reaffirmed the C2/Stable rating of Lebuhraya Kajang-Seremban Sdn Bhd’s (LEKAS or the Company) RM633 mil Junior Sukuk Istisna’ (2007/2025). The Company holds the concession for the 44-km Kajang-Seremban Highway (the Highway) until May 2039. The rating takes into consideration the low likelihood of repayment of the Junior Sukuk as well as its deep subordination to the Company’s other debt obligations, i.e. Redeemable Convertible Secured Islamic Debt Securities (RCSIDS) and Syndicated Term Loan (STL).
Following a debt-restructuring exercise in October 2013, repayments on the Junior Sukuk are not permissible until the STL and the RCSIDS have been fully settled. Given the mismatch between LEKAS’s annual cash-generating capacity and the lumpy one-off repayment on the RCSIDS in April 2023, we maintain our view that the Company will have to refinance the RCSIDS upon maturity.
Coming in at RM82.8 mil, LEKAS’s revenue inched up 3.80% in FY Mar 2019, fuelled by strong growth in the Highway’s short-haul traffic volume (+10.98%) and healthier long-haul traffic volume (+2.05%). The improvement in its traffic volumes had been able to lift the Company’s revenue. Although we expect the Highway to keep attracting more traffic in the coming years, we are cognisant of the potential downward pressure on its long-haul traffic volume on account of future toll rate hikes.
A potential default on the STL could result from risk of delays of compensation without any revision in scheduled tariff hikes. While the Company received its 50% advance compensation for 2018, there have been delays in the receipt of the balance and advance payment for 2019 (advance payments for the past few years had been paid in either the third or fourth quarter). Even so, we are confident that the GoM will continue to honour the spirit of the agreement in regard of the compensation arrangement in the event of non-revision of toll rates as observed to date.
Similar to most concession related projects, LEKAS is exposed to single-project and regulatory risks.
Toh Wei Liang
(603) 3385 2620
(603) 3385 2577
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Ratings on Lebuhraya Kajang Seremban Sdn Bhd