Published on 31 Dec 2020.
The reaffirmation of the AA2/Stable rating of Lingkaran Trans Kota Sdn Bhd’s (Litrak or the Company) Sukuk Musyarakah IMTN I and IMTN II Programmes (2008/2023) (collectively, the Sukuk) is based on our expectation that the Company will maintain its strong cashflow and debt-servicing ability, backed by the strategic alignment and matured traffic performance of the Lebuhraya Damansara-Puchong highway (the LDP or the Highway).
Despite the knock-on impact from the various stages of the Movement Control Order (MCO) amid the COVID-19 pandemic, the LDP’s average daily traffic (ADT) had been restored to almost pre-MCO levels. That said, the reinstatement of the conditional MCO on 14 October 2020 is likely to unravel the improvement achieved to date. As such, our sensitivity analysis assumes that the Highway’s traffic volume will decline between October and December 2020.
The Highway’s ADT shrank to 424,199 vehicles (-2.7%) in FY Mar 2020 and 317,027 vehicles (-27.6%) in 1H FY Mar 2021. However, we derive some comfort from the strong recovery after the gradual easing of movement restrictions. Although ADT plunged 75% at the height of the lockdown in April, the Highway’s ADT was only 2.1% lower in September 2020. Despite the 2.4% y-o-y drop in revenue to RM503.8 mil in FY Mar 2020 and a further 26.8% fall in revenue to RM190.3 mil in 1H FY Mar 2021 (1H FY Mar 2020: RM260.0 mil), Litrak is envisaged to have a sufficient cashflow buffer to meet the Sukuk’s financial obligations and maintain its debt coverage levels. Its finance service cover ratio (FSCR, with cash balances and calculated in payment months) is envisaged to exceed 2 times under RAM’s stressed analysis.
Our sensitised scenario incorporates prudent traffic recovery, a postponement of the LDP’s tariff increase to 2022, and delayed receipt of compensation payments from the Government of Malaysia (GoM) (between 1 year to 1.5 years). We expect Litrak to remain prudent in its distributions to its shareholder (FY Mar 2020: RM125 mil; FY Mar 2021: projected RM105 mil), such that a minimum FSCR of at least two times is maintained throughout the Sukuk’s remaining tenure.
Litrak’s revenue remains partly dependent on compensation payments from the GoM, which account for a third of the Company’s current revenue. Our stressed analysis incorporates delays in the receipt of compensation (i.e. payment for the last three years had been received in the fourth quarter of each year). Even so, we believe the GoM will continue to honour the compensation arrangement in the event of non-revision, although we do not preclude uncertainty in the timing of payments.
Similar to other toll concessionaires, Litrak 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 sukukholders and the Company as per the terms of the concession agreement.
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Published by RAM Rating Services Berhad
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Ratings on Lingkaran Trans Kota Sdn Bhd