Published on 21 Jan 2022.
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.
Seri Nuralya Munawir
(603) 3385 2484
Davinder Kaur Gill
(603) 3385 2525
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Published by RAM Rating Services Berhad
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Ratings on Lingkaran Trans Kota Sdn Bhd