Published on 24 Dec 2019.
RAM Ratings has revised the outlook on the AA3 rating of Besraya (M) Sdn Bhd’s (the Company) RM700 mil Sukuk Mudharabah Issuance Facility (2011/2028) to stable, from negative.
Sustained traffic volumes on the Sungai Besi Highway and the Besraya Eastern Extension (collectively known as the Highways) and the absence of distributions since FY Mar 2018 have enabled the preservation of the covenanted minimum finance service coverage ratio (FSCR) of 2 times over the last two years – the threshold for AA3-rated transactions (with cash balances). As a result, the Company registered an FSCR of 2.19 times (with cash balances, post-distribution) as at end-July 2019 (latest principal payment date: 28 July 2019) – outperforming our expectation of 2.0 times.
The reaffirmed rating reflects Besraya’s stable earnings and cashflow-generating ability, underpinned by the established traffic profiles of the Highways. In FY Mar 2019, the Highways registered a higher average daily traffic (ADT) of 158,232 vehicles (+1.4%), attributable to the resilient demand at both the Loke Yew and Mines toll plazas. Traffic volume increased 7.2% at the Loke Yew toll plaza while the ADT for the Mines toll plaza continued to anchor overall traffic volumes. That said, the ADT for the latter was lower due to the availability of alternative routes.
Our sensitised case assumes that Besraya’s next and final toll-rate hike will take place in 2021 (originally scheduled for 1 January 2018), with a 4.0% contraction in the Highways’ traffic volume. Average annual ADT growth in a year without toll rate increases is expected to come in at 1.5% throughout the remaining tenure of the Sukuk. Under our sensitised scenario, which includes a two-year delay in the receipt of the balance compensation from the Government of Malaysia (GoM) for non-toll rate increase for 2019, the transaction FSCRs are anticipated to be able to meet the minimum FSCR of 2.0 times throughout the tenure of the Sukuk. Besraya will ensure compliance of the minimum post-distribution FSCR of 2.0 times for any dividend payments.
If the tariff hike or receipt of compensation were to be deferred beyond RAM’s assumed timeframe, Besraya’s debt-servicing capacity will be compromised. We note that the GoM has been discharging its payment obligations to date, albeit with some delays. We believe that the GoM will continue honouring the compensation arrangement in the event of non-revision of toll rates.
Under Budget 2020, the GoM has reiterated its intention of taking over four highways: the Shah Alam Expressway (KESAS), the Damansara-Puchong Expressway (LDP), the Western KL Traffic Dispersal System (SPRINT) and the Stormwater Management and Road Tunnel (SMART). To date, there has been no announcement on any potential change in shareholders or restructuring for Besraya.
In any case, a change in shareholding is permissible under the transaction, subject to prior written approval from the GoM. Any potential termination or expropriation of Besraya’s concession is viewed as an event risk. If this materialises, the GoM will be obligated to pay the sukuk-holders within six months after the termination/expropriation date, an amount equal to the aggregate amount owed to the lenders as at the date of payment, after deducting the value of any security.
Chan Yin Huei
(603) 3385 2498
(603) 3385 2577
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Ratings on Besraya (M) Sdn Bhd