Published on 22 Jan 2020.
RAM Ratings has reaffirmed the ratings of Tranche 1 and Tranche 2 of West Coast Expressway Sdn Bhd’s (West Coast or the Company) RM1 bil Guaranteed Sukuk Murabahah Programme (2015/2036), at AAA(bg)/Stable and AAA(fg)/Stable, respectively. The ratings reflect the irrevocable and unconditional kafalah guarantees extended by Bank Pembangunan Malaysia Berhad (rated AAA/Stable/P1) and Danajamin Nasional Berhad (rated AAA/Stable/P1), which enhance the credit standing of the Sukuk beyond West Coast’s stand-alone credit strength.
In October 2019, The Malaysian Highway Authority (MHA) approved applications for extension of time (EOT) for several sections, along with a revised construction work programme (CWP). Under the revised work schedule, construction progress as at end-October 2019 stood at 58.07% against the scheduled 64.64% – or six months behind schedule – mainly due to construction delays at Section 11. The targeted completion date has been revised from the initial August 2019 to May 2022, except for the final section – Section 7 – which is only expected to be completed by June 2024 owing to delays in the finalisation of its alignment.
To date, construction works for four out of 11 sections of the West Coast Expressway (WCE or the Expressway) have been completed and are currently open to road users. The operational sections are Sections 8,9 and 10 in Perak as well as Section 5 in Selangor. On 15 January 2020, the GoM (Government of Malaysia) gazetted the commencement of tolling for the sections in Perak and West Coast expects sectional tolling to be forthcoming soon.
On account of the heavier compensation awarded to landowners, land acquisition cost (particularly in Selangor) has climbed up to a projected RM2.13 bil – exceeding the GoM’s allocation of RM980 mil. West Coast plans to fund the remaining RM388 mil of unpaid land cost, including land that is awaiting the enquiry process, via costs savings from project expenditure and equity injections – including a portion of the RM481 mil raised via rights issue by WCE Holdings Berhad in November 2019. That said, the Company is currently appealing against RM634 mil of the awarded land compensation. Although the risks of hold-ups in obtaining land rights and increased land cost remain, only 5% of private land – mainly for Sections 7 and 12 – has yet to go through the land enquiry process.
Based on RAM’s sensitised cashflow analysis which assumes no recovery of land costs from court appeals, West Coast will need to rely on shareholder support to fund its remaining land cost. That said, the Company’s profit payments prior to August 2022 are anticipated to be sufficiently covered by the remaining proceeds from project-financing facilities. The long tenure of the concession also provides room for a refinancing exercise. Additionally, West Coast’s shareholders – WCE Holdings and Road Builder (M) Holdings Bhd – have irrevocably and unconditionally committed to providing financial support to ensure the completion of the Expressway, along with up to RM400 mil under a cash-deficiency undertaking.
While West Coast remains exposed to the GoM’s policies for the sector, sectional tolling is still expected to commence in the near future – in line with the recent gazetting. Given the GoM’s recently announced intention to freeze the toll rates of the North-South Expressway (PLUS) until 2058, the implementation of the WCE’s tariff increases – scheduled in its fourth year of operations and every five years thereafter – may come under scrutiny and remain challenging to West Coast from a cost perspective. In any case, West Coast is entitled to compensation from the GoM in the event of lower-than-projected rates under the concession agreement. As with most concession-related projects, the Company is also exposed to regulatory and single-project risks. The construction of the WCE is undertaken by a consortium comprising IJM Construction Sdn Bhd and WCE Holdings Berhad, known as IJMC-KEB Joint Venture.
Davinder Kaur Gill
(603) 3385 2525
(603) 3385 2577
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