Published on 22 Aug 2023.
RAM Ratings has affirmed the AAA(bg)/Stable rating of EKVE Sdn Bhd’s (EKVESB or the Company) Guaranteed Sukuk Murabahah Facility of up to RM1 bil in Nominal Value (the Sukuk). The rating reflects irrevocable and unconditional kafalah guarantees extended by Maybank Islamic Berhad and Bank Pembangunan Malaysia Berhad for tranche 1 and 2 issued under the programme respectively (both rated AAA/Stable/P1). The guarantees enhance the Sukuk’s credit profile beyond its standalone position.
Under a 50-year concession agreement with the Government of Malaysia, EKVESB holds the concession for the East Klang Valley Expressway (EKVE or the Expressway), a 36.16 km closed-toll system which starts from Sungai Long in Kajang and ends at Ukay Perdana in Ampang. The Expressway’s construction progress remained delayed, standing at 91.82% as of 25 March 2023 (scheduled: 98.56%).
The Project had earlier missed the original September 2019 completion deadline owing to land acquisition issues, which were exacerbated by pandemic-induced lockdowns. The most recent delay stemmed from a lack of funding. EKVESB is awaiting the outcome of its application to the Malaysian Highway Authority for another extension of time. Funding and liquidity concerns will be resolved via additional debt funding procured by both EKVESB and its parent company, Ahmad Zaki Resources Berhad, which can support the Company’s construction cost and debt obligations up to December 2024.
Despite the setbacks, management anticipates Section 1 of the EKVE – which runs from the Sungai Long toll to the Ampang toll – to commence sectional tolling in the beginning of next year, while estimating the Expressway to be fully completed by December 2024.
On the traffic and tolling revenue front, EKVE is exposed to competition posed by alternatives and the possibility of further construction hold-ups. Cash flow mismatches resulting from project completion delays suggest that refinancing and/or an additional financial injection will be pivotal to ensuring continued servicing of the Sukuk, particularly with principal repayment scheduled to start in 2026. The long-dated highway concession tenure provides room for refinancing though any refinancing prospects will hinge on traffic performance and toll collections upon the Expressway’s opening.
As with most concession-related projects, EKVESB is exposed to regulatory and single-project risks.
Ho Chian Leng, CFA
(603) 3385 2527
Davinder Kaur Gill
(603) 3385 2525
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