RAM Ratings reaffirms AA2/Stable rating of Kesas’ sukuk

Published on 30 Dec 2020.

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RAM Ratings has reaffirmed the AA2/Stable rating of Kesas Sdn Bhd’s (the Company) RM735 mil Sukuk Musharakah IMTN (2014/2023) (the Sukuk). The reaffirmation of the rating is based on our expectation that the Company will maintain its robust cashflow, which is underpinned by the established traffic profile of the Shah Alam Expressway (SAE or the Expressway). 

Although COVID-19-related lockdowns negatively affected the SAE’s traffic volumes in FY Jul 2020, we derive some comfort from its strong recovery after the gradual relaxation of movement restrictions. The Expressway’s average daily traffic had rebounded to 304,192 vehicles by September 2020, albeit still 5% lower than the pre-Movement Control Order average of 320,000. The weaker traffic volume had caused a y-o-y revenue loss of about RM52 mil (17% of total revenue) in FY Jul 2020. 

The reinstatement of the Conditional Movement Control Order (CMCO) in the Klang Valley effective 14 October 2020 is envisaged to again pressure traffic volumes. As such, our cashflow projections have incorporated another three months of CMCO-related traffic loss, followed by a gradual recovery thereafter. We also assume a one-year delay in the receipt of compensation payments from the Government of Malaysia (GoM), with a toll rate increase only in 2022. 

Despite this, we expect Kesas’ minimum and average finance service coverage ratios (FSCRs) to remain strong at a respective 2.25 times and 2.55 times throughout the remaining tenure of the Sukuk. RAM’s sensitised cashflow estimates that the Company will be able to distribute about RM69 mil of dividends in FY Jul 2021 (base case: RM90 mil). On the latest payment date of 10 October 2020, Kesas’ FSCR stood at 2.27 times (with cash balances, post-distribution), supported by its healthy average annual pre-financing cashflow and sizeable cash reserves.

Notwithstanding the assumption of slower compensation payments in our cashflow analysis, we highlight that Kesas has been promptly receiving compensation from the GoM in lieu of tariff increases, as per its concession agreement. We believe the GoM will continue to honour the compensation arrangement in the event of a non-revision of toll rates. As with most concession-related projects, Kesas is inherently exposed to single-project risk, although the entire stretch of the SAE is unlikely to be disrupted at any particular time.

In 2019, the GoM – through Minister of Finance (Incorporated) (MOF Inc) – made an offer to acquire four highways, including the SAE, in which Gamuda Berhad holds majority stakes. Gamuda owns 70% of Kesas while the other 30% is held by Perbadanan Kemajuan Negeri Selangor. In December 2019, MOF Inc and the four concessionaires agreed to extend the cut-off date for negotiations and finalisation of definitive agreements for the acquisitions to 29 February 2020 (from 31 December 2019 originally). The offer has since lapsed, with no further extension granted.  


Analytical contact
Irfan Afifah Mohd Zaki
(603) 3385 2551

Media contact
Padthma Subbiah
(603) 3385 2577


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.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

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