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RAM Ratings affirms Northern Gateway
Published on 18 Jul 2024.
RAM Ratings has affirmed the AA1/Stable rating of Northern Gateway Infrastructure Sdn Bhd’s (the Company) RM340 mil MTN Programme (2017/2034) (the Programme). The affirmation takes into consideration Northern Gateway’s strong debt servicing ability, supported by its healthy cash reserves and the steady and timely inflow of concession-based cash flows that it is entitled to receive. This is notwithstanding the additional construction works it is about to embark on.
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 latter on 19 August 2019. In 2023, the Thai and Malaysian governments agreed to construct a new 0.9 km road and accompanying infrastructure to connect the customs, immigration and quarantine complex at the Sadao border checkpoint in Songkhla, Thailand to the Project (collectively, Additional Works). The responsibility to build and complete the Additional Works was proposed to be given to Northern Gateway earlier this year and is permitted under the existing concession agreement.
In our view, the undertaking of the Additional Works is expected to be credit neutral to the MTN rating. Our assessment considers the proposed transactional and contractual risk mitigation measures that seek to isolate credit risks associated with the Additional Works from that of the completed and operational Bukit Kayu Hitam facility. Overall, concession cashflows and earnings, including fixed and prompt monthly Availability Charges and Maintenance Service Charges, which underpin the Company’s MTN debt servicing ability, will not be negatively affected in the event of delays, cost overruns and/or the non-performance of the Additional Works. The management has guided that the RM141.6 mil Additional Works will be completed within 15 months from June 2024.
We expect the Company to record minimum and average debt service coverage ratios of 1.52 times and 1.91 times, respectively, throughout the tenure of the Programme, remaining commensurate with AA1 rating. Our analysis conservatively includes a RM30 mil subordinated revolving credit facility to fund the construction of the Additional Works, delays in the receipt of concession payments, and zero construction and maintenance profits from the Additional Works.
Owing to the non-complex nature of maintenance and low counterparty risk posed by the government, concession termination under Phases 1 and 2 of the Project 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.
Analytical contacts
Ho Chian Leng, CFA
(603) 3385 2527
chianleng@ram.com.my
Davinder Kaur Gill
(603) 3385 2525
davinder@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@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 2024 by RAM Rating Services Berhad
