Published on 10 Nov 2020.
The reaffirmation of the AA3/Stable rating of Besraya (M) Sdn Bhd’s (Besraya or the Company) RM700 million Sukuk Mudharabah Issuance Facility (2011/2028) is premised on our expectation that the Company will be able to maintain its solid cashflow coverage throughout the tenure of the Sukuk. This is backed by the established traffic profiles of the Sungai Besi Highway and the Besraya Eastern Extension (collectively known as “the Highway”). Although traffic on the Highway has been affected by the various stages of the Movement Control Order (MCO) caused by the COVID-19 pandemic, we note the strong rebound in traffic following the easing of restrictions. Our sensitivity analysis which factors in the current reinstatement of the conditional MCO indicates that Besraya has sufficient cashflow buffer to withstand such stress.
Average daily traffic (ADT) on the Highway shrank to a respective 155,550 (-1.7%) and 111,568 (-29.4%) vehicles in FY Mar 2020 and 1H FY Mar 2021. However, we derive some comfort from the strong recovery following the gradual easing of the MCO. Although ADT plunged by 85% at the height of the lockdown in April 2020, the Highways’ ADT had been mostly restored to pre-MCO levels by September 2020. However, the recent resurgence of COVID-19 infections has again triggered conditional MCO in the Klang Valley, effective 14 October 2020.
The Company’s finance service coverage ratio (FSCR) had thinned to 1.94 times (with cash balances, post-distribution) on the Sukuk’s latest payment date of 28 July 2020. While lower than the rating threshold of 2.0 times, this is still deemed commendable given the unprecedented lockdown in 1Q FY Mar 2021, which had led to a significant revenue loss of about RM21.2 mil (27% of total revenue) in 1H FY Mar 2021.
Under our sensitised scenario, Besraya’s FSCRs are expected to meet the minimum requirement of 2.0 times throughout the tenure of the Sukuk. This incorporates another two months of the current conditional MCO and more prudent traffic recovery as well as a two-year delay in the receipt of compensation from the Government of Malaysia (GoM). While traffic growth is encouraging at the Loke Yew toll plaza, traffic at the Mines toll plaza has been declining in recent years due to the availability of cheaper alternatives and toll-free roads as well as ongoing construction works along the Highway. Compounded by the impact of COVID-19 and the tariff hike envisaged in 2022 (base case: 2023), the ADT is expected to stay below pre-MCO levels throughout the Sukuk’s tenure, albeit still supportive of its cashflow-generating ability. This is after assuming an average organic growth of 1.5% per annum in years without tariff increases.
Besraya is not expected to test any rating thresholds in the near term, following the RM29.7 mil of compensation receipts from the GoM in mid-October 2020. That said, we will re-evaluate our assumed CMCO duration as new developments unfold. Without any certainty on the timing and duration of lockdowns or the severity of Besraya’s reduced cashflow before the worst of this pandemic is over, we expect traffic volume to remain volatile.
While the GoM has signalled that toll abolition is no longer a priority, Besraya will keep relying on compensation payments (about 20% of its total revenue) in the absence of tariff increases. 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. However, we note that the GoM has been discharging its payment obligations to date, albeit with some delays.
Similar to other toll-road concessionaires, Besraya is inherently exposed to regulatory and single-project risks. Potential termination or expropriation of its concession remains an event risk. Under such circumstances, the GoM will be obligated to pay the Sukuk holders as per the concession agreement.
Wong Ee Loo
(603) 3385 2521
(603) 3385 2577
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Ratings on Besraya (M) Sdn Bhd