Published on 07 Aug 2023.
RAM Ratings has affirmed the AA1/Stable rating of Northern Gateway Infrastructure Sdn Bhd’s (the Company) RM340 mil MTN Programme (2017/2034). The affirmation is premised on Northern Gateway’s strong debt servicing ability, thanks to the steady and timely inflow of concession-based cash flows that it is entitled to receive. In 2011, Northern Gateway was awarded the concession to build and maintain the customs and immigration complex in Bukit Kayu Hitam, Kedah (the Project). The complex was completed in two phases, the second on 19 August 2019.
Following the execution of the delayed Phase 2’s lease and sub-lease agreements, Northern Gateway received RM16.25 mil in concession payments previously withheld by the Ministry of Home Affairs. As such, the Company’s debt service coverage ratio (DSCR) (with cash balances, post-distribution, calculated over a 12-month period in payment months) of 5.33 times for February 2023 was especially robust.
We expect minimum DSCRs of at least 1.50 times throughout the MTNs’ tenure, comfortably in line with the requirement for an AA1-rated transaction. Our analysis accounts for a RM20 mil dividend payment in fiscal 2023. The risk of transaction cashflow leakage is minimised by the MTNs’ tight covenants and structural features.
While the Project has been completed, final construction costs may be determined only after remaining payments to contractors are made. These will be covered by unutilised construction funding. Maintenance services for the complex, undertaken by Alam Flora Environmental Solutions Sdn Bhd, stayed commendable, as evidenced by minimal performance deductions incurred to date.
Given the non-complex nature of maintenance and low counterparty risk posed by the government, concession termination is unlikely but may entitle Northern Gateway and bondholders to compensation should it occur. In such an instance, risk arises from delays in compensation payments.
Seri Nuralya Munawir
(603) 3385 2484
Davinder Kaur Gill
(603) 3385 2525
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Ratings on Northern Gateway Infrastructure Sdn Bhd