Published on 12 Jan 2021.
RAM Ratings has reaffirmed the AAA(bg)/Stable rating of EKVE Sdn Bhd’s (EKVESB or the Company) Guaranteed Sukuk Murabahah Facility of up to RM1 bil in Nominal Value (the Sukuk). The rating reflects the irrevocable and unconditional guarantees extended by AAA-rated Maybank Islamic Berhad and Bank Pembangunan Malaysia Berhad.
EKVESB is the concessionaire for the East Klang Valley Expressway (EKVE or the Project or the Expressway) – a 36.16 km closed-toll system which starts from Sungai Long in Kajang and terminates at Ukay Perdana in Ampang. This is pursuant to a 50-year concession agreement (CA) with the Government of Malaysia (GoM).
Delayed land acquisition and approval from environmental authorities for bridge designs have held up the construction of the EKVE. Another factor is rock blasting, which must adhere to a strict timeline and proper standard operating procedures (SOPs). As at end-October 2020, the Project was 76.75% completed, translating into more than 430 days’ delay against the original completion date, compounded by COVID-19-induced lockdowns. We note that construction work was minimal during the movement control order (MCO) between 18 March and 12 May 2020, limited to safety and traffic management work.
Post-MCO, construction progress remains slow as the Company is unable to operate at full capacity on account of strict SOPs. EKVESB has committed more resources to address the prolonged delay and will seek further extensions if it cannot meet the present extended timeline.
While the Project is anticipated to be completed by May 2021 within the RM1.55 bil budgeted cost, RAM’s sensitised cashflow projections factor in a six-month delay and 5% of cost overruns. EKVESB’s sole shareholder, Ahmad Zaki Resources Berhad (AZRB), remains committed to financially backing the Project until completion. This is to cover any potential construction cost overrun and to enable the Company to meet its financial covenants while honouring its financial obligations under the Sukuk.
Incorporating construction and traffic-related risks as well as no financial support from AZRB, our sensitivity analysis indicates that EKVESB may need to refinance the Sukuk after the profit payment in July 2021. This is on account of insufficient funds to meet its profit payment in January 2022.
The Expressway will complete the Kuala Lumpur Outer Ring Road network and improve connectivity for north-south traffic flows in the eastern part of the Klang Valley. That said, the prospect of its traffic volume may be hampered by high initial toll rates and competition from competing infrastructure such as the Sungai Besi-Ulu Kelang Expressway (currently under construction) and the Sungai Buloh-Kajang MRT line.
As with most concession-related projects, the Company is exposed to regulatory and single-project risks.
Yip Chee Meng
(603) 3385 2516
(603) 3385 2577
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Ratings on EKVE Sdn Bhd