Published on 21 Oct 2022.
RAM Ratings has reaffirmed the C2/Negative rating of Lebuhraya Kajang-Seremban Sdn Bhd’s (LEKAS or the Company) RM633 mil Junior Sukuk Istisna’ (2007/2025). LEKAS holds the concession for the 44 km Kajang-Seremban Highway (the Highway) until May 2039. The C2 rating reflects the Junior Sukuk’s high likelihood of default in April 2023, triggered by a cross default of a bullet payment on the Company’s RM460 mil Redeemable Convertible Secured Islamic Debt Securities (RCSIDS). Following the Company’s debt restructuring in 2013, repayments on the Junior Sukuk can only be made after LEKAS’s syndicated term loan (STL) and RCSIDS are fully repaid.
Our analysis considers the recent announcement by the Prime Minister on a toll rate reduction at LEKAS effective 1 January 2023, the quantum of which has yet to be announced. Even with a reduction in tariffs between 5%-15% as well as further delays in compensation receipts (receivables up to end-2022 only and none thereafter), we estimate that the Company’s cash reserves of RM54 mil (end-September 2022), together with upcoming operating cashflows over the next six months, is sufficient to meet upcoming STL obligations (RM67.5 mil by 10 April 2023). Due to a mismatch between LEKAS’s annual cash generating capacity and the lumpy one-off RCSIDS repayment, the Company is in the midst of a restructuring and refinancing exercise to address the shortfall. Our rating action assumes timely completion of the ongoing refinancing exercise for the RCSIDS and Junior Sukuk, failing which the rating of the subordinated Junior Sukuk will be downgraded to ‘D’.
The Highway has seen strong traffic recovery since August 2021 as travel restrictions were gradually lifted. As the country transitions into COVID-19 endemicity, the Highway’s traffic flow has outperformed pre-pandemic levels, thanks to higher daily traffic volumes (on weekdays and weekends), the growing population of surrounding areas, and festive seasons. The average daily traffic of 91,000 vehicles for August 2022 was 113% above the 2019 level.
Moving forward, RAM anticipates gradual traffic growth, given the progress of development projects nearby. Our sensitised analysis also incorporates no further government compensation from 1 January 2023 onwards and no rate hikes during the Junior Sukuk’s remaining tenure. We believe price-sensitive users would be more inclined to use LEKAS, considering the narrowing of North-South Expressway toll rates and LEKAS’s once the toll rate reduction takes effect.
In October 2021, LEKAS received an advance payment of RM5.98 mil for the year as compensation for non-revision of toll rates. We expect the government to continue to honour the spirit of the concession agreement in meeting compensation payments up to end-2022 (despite a year delay assumption by RAM). As with most concession-related project companies, LEKAS is exposed to single-project and regulatory risks.
Seri Nuralya Munawir
(603) 3385 2484
Davinder Kaur Gill
(603) 3385 2525
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