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RAM Ratings reaffirms rating of West Coast Expressway’s guaranteed sukuk
Published on 03 Nov 2022.
RAM Ratings has reaffirmed the AAA(bg/fg)/Stable rating of West Coast Expressway Sdn Bhd’s (WCE or the Company) RM1 bil Guaranteed Sukuk Murabahah Programme (2015/2036) (the Sukuk). The rating reflects irrevocable and unconditional kafalah guarantees extended by Bank Pembangunan Malaysia Berhad and Danajamin Nasional Berhad (both rated AAA/Stable/P1), which enhance the credit strength of the Sukuk beyond WCE’s standalone credit position. WCE is the concessionaire for the West Coast Expressway (the Expressway) which will link Banting, Selangor to Taiping, Perak.
The Expressway’s construction was 11 months behind schedule as at end-June 2022, largely due to land acquisition delays and slow construction progress which were aggravated by pandemic induced movement and economic restrictions. WCE is awaiting the outcome of its application to the Malaysian Highway Authority for another extension of the timeline to complete several sections of the Expressway. The full completion of the West Coast Expressway is targeted for 14 March 2025.
With four sections already open for use, the Expressway saw average daily traffic (ADT) of 45,000 vehicles for the first six months of 2022. We remain cognisant of competition posed by alternative, toll-free, roads and the possibility of further construction hold-ups which could hamper the flow of traffic. By assuming a six-month delay in the completion of sections still under construction, we project ADT of 121,000 vehicles for 2022-2025, with average revenue of RM91 mil per annum, which is lower than the traffic consultant’s expectations. We assume tapered traffic migration from alternatives roads and a gradual ramp-up in traffic upon the commencement of full tolling on the Expressway.
Based on RAM’s sensitised cashflow analysis, WCE will need shareholder support from February 2024 onwards to fund remaining land and construction costs (RM1.57 bil as at end-March 2022) and to partially service financial obligations. Nevertheless, the lengthy term of the concession provides room for a refinancing or restructuring exercise of WCE's financial obligations (as evidenced by the extended principal maturities of the Syndicated Term Loan, effected since August 2022). Furthermore, the Company’s shareholders, WCE Holdings Berhad and Road Builder (M) Holdings Bhd, have irrevocably and unconditionally committed to providing financial support to ensure the completion of the Expressway, along with up to RM400 mil under a cash deficiency undertaking.
WCE remains exposed to government policies on infrastructure in view of the sensitivity of toll rate hikes. That said, the concession agreement entitles the Company to federal government compensation in the event that toll rates are not increased as scheduled. As with most concession-related companies, WCE is vulnerable to regulatory and single-project risks.
Analytical contacts
Seri Nuralya Munawir
(603) 3385 2484
nuralya@ram.com.my
Davinder Kaur Gill
(603) 3385 2525
davinder@ram.com.my
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
© Copyright 2022 by RAM Rating Services Berhad
