RAM Ratings reaffirms Litrak’s AA2/Stable sukuk rating

Published on 21 Jan 2022.

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RAM Ratings has reaffirmed the AA2 ratings of Lingkaran Trans Kota Sdn Bhd’s (Litrak or the Company) Sukuk Musyarakah IMTN I and IMTN II Programmes (2008/2023) (collectively, the Sukuk). 

The rating action is based on our expectation that the Company will maintain its robust cashflow and debt servicing ability, backed by Lebuhraya Damansara-Puchong’s (LDP or the Highway) mature traffic profile and the gradual revival of traffic flow post-movement restrictions. 

The Highway’s traffic volume has been volatile since 18 March 2020 amid prolonged lockdowns. From pre-pandemic levels, the LDP’s average daily traffic (ADT) dropped 23% to 327,000 vehicles in FY Mar 2021 and another 38% to 270,000 vehicles in 1H FY Mar 2022. However, Phase 4 of the National Recovery Plan which came into effect in the Klang Valley on 18 October 2021, saw ADT in November come up to 90% of pre-pandemic levels. We draw comfort from Klang Valley’s encouraging vaccination rate (95% fully vaccinated) and the high prevalence of Stage 1 and 2 COVID-19 infections (not requiring hospitalisation and admission to intensive care units). 

Figures 1 and 2: Decline in annual ADT pre-pandemic as demand for alternative modes of public transportation increased


Sources: Litrak and Ministry of Transport Malaysia

Traffic contraction during the pandemic resulted in a 16% annualised decline in revenue (RM164.60 mil) in 1H FY Mar 2022 (FY Mar 2021: RM392.83 mil). Despite depressed traffic and revenue, Litrak’s finance service coverage ratio (FSCR, with cash balances, post-distribution, calculated on payment dates) for April 2021 and October 2021 outperformed our projections at 2.74 times and 2.79 times, respectively (RAM’s projections: 2.08 times and 2.23 times). This was due to healthier cash reserves, stemming in part from lower operational and capital expenditure incurred for the periods as well as financial discipline and caution in making distributions to the Company’s shareholders. Cash reserves of RM414 mil as at end-September 2021, combined with upcoming operating cashflows, will fully cover remaining principal and profit payments due on the Sukuk (RM413 mil). However, the option to make distributions to shareholders while the Sukuk is outstanding still remains.

RAM’s sensitised cashflow incorporates a gradual rebound in traffic in the coming months, a toll tariff hike in CY 2023, delays in the receipt of government compensation (1-1.5 years), migration of traffic to competing infrastructure and the optimisation of dividend distributions as allowed by the transaction terms.  We expect Litrak to register a minimum FSCR of 2 times for the last two sukuk payment dates (10 April 2022 and 10 October 2022) while recording a residual cash balance of RM189 mil for distributions by April 2023 (i.e., upon the Sukuk’s maturity). 
Litrak’s revenue will remain partly dependent on compensation payments from the Government of Malaysia on account of the continued deferment of tariff hikes. We believe the government will continue to honour the compensation arrangement in the event of non-revision, although we do not preclude uncertainty in the timing of payments. Like 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 government will be obligated to compensate sukukholders and the Company in accordance with the terms of the concession agreement.

Analytical contacts
Seri Nuralya Munawir
(603) 3385 2484

Davinder Kaur Gill
(603) 3385 2525

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.

Published by RAM Rating Services Berhad
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