Published on 29 Nov 2021.
RAM Ratings has revised from stable to negative the outlook on the C2 rating of Lebuhraya Kajang-Seremban Sdn Bhd’s (LEKAS or the Company) RM633 mil Junior Sukuk Istisna’ (2007/2025). The rating of the facility has been reaffirmed.
The revision of the outlook is premised on our expectation of a default on the Junior Sukuk within the next 18 months – triggered by a cross default of the RCSIDS, should the RCSIDS are not converted into new shares or refinanced. The rating takes into consideration the Junior Sukuk’s deep subordination to the Company’s other debt obligations, i.e. its Redeemable Convertible Secured Islamic Debt Securities (RCSIDS) and Syndicated Term Loan (STL).
In view of the Kajang-Seremban Highway’s (the Highway) adversely impacted traffic performance following prolonged movement control orders since 18 March 2020, the STL providers had earlier consented to a deferral of a RM30 mil principal repayment due in October 2021 (deferred to April 2023) leaving only RM7.5 mil repaid this October. As at end-October 2021, RM105 mil of the STL remained outstanding. This sum is anticipated to be fully repaid by April 2023. Any shortfall is likely to be covered by the irrevocable RM25 mil bank guarantee (BG) procured by IJM Corporation Berhad (LEKAS’s shareholder) in favour of the STL holders – the BG’s term has been extended to 10 April 2023.
Following a debt restructuring exercise in October 2013, repayments on the Junior Sukuk are not permissible until the STL and the RCSIDS have been fully settled. Given the mismatch between LEKAS’s annual cash generating capacity and the lumpy one-off repayments, it is highly unlikely that the Company will be able to redeem the RCSIDS when it matures within the next 18 months (i.e. April 2023), triggering a cross default of the Junior Sukuk. In anticipation of insufficient cashflows to meet its repayment obligations, management has initiated the refinancing process for the RCSIDS and the Junior Sukuk in order to avert the default. Repayments on the Junior Sukuk, which are due on 12 June 2023, 12 June 2024 and 12 June 2025, can only be made after the RCSIDS are fully repaid.
Owing to various movement restrictions imposed during the pandemic, LEKAS’s pre-financing cashflow for FY Mar 2021 came in lower at RM44 mil against RAM’s projection of RM54 mil. The Highway’s annual traffic volume contracted by 24.5% for the period (Average daily traffic, ADT: 58,982 vehicles), resulting in revenue declining 26% to RM65.09 mil. In 5M FY Mar 2022, traffic shrank by 18.4% y-o-y (ADT: 44,348 vehicles), causing revenue to dip 33% to RM17.84 mil.
Upon implementation of the National Recovery Plan, ADT for October 2021 rebounded to 95% of pre-pandemic levels while ADT for the first 21 days of November 2021 came up to 104%. Our sensitised analysis incorporates a one-year delay in the receipt of government compensation, the absence of tariff hikes for the remaining tenure of the Junior Sukuk, a reduced traffic flow and volatile traffic recovery going forward given the recent rising number of new COVID-19 cases. Under these stressed assumptions, RAM expects monthly ADT to fully recover to pre-pandemic levels by February 2022.
Following an 18% downward adjustment of the North-South Expressway’s (NSE) tariffs in February 2020, the rate difference per km between the Highway and the NSE for closed-toll stretches stands at 62% with the current toll rates in place. Subject to lane capacities, we believe price-sensitive users would be more inclined to choose alternative routes considering the freeze on NSE toll rates until 2058, more so if the Highway’s tariff hikes take place.
A balance of RM3.59 mil for 2020 and an advance payment of RM5.98 mil for 2021 have recently been received as government compensation to LEKAS for non-revision of the Highway’s tariffs. We expect the government to continue to honour the spirit of the concession agreement for the Highway in meeting compensation payments due, as observed in the past. As with most concession-related projects, LEKAS is exposed to single-project and regulatory risks.
LEKAS holds the concession for the 44 km Kajang-Seremban Highway until May 2039.
Seri Nuralya Munawir
(603) 3385 2484
Davinder Kaur Gill
(603) 3385 2525
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Ratings on Lebuhraya Kajang Seremban Sdn Bhd