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18 May | Friday
RAM Ratings: RM53 billion of toll-road bonds and sukuk to be impacted by proposal to abolish tolls

RAM Ratings expects bonds and sukuk issued by toll road concessionaires to be affected by the new administration’s proposed intention to abolish the imposition of highway tolls. While the government has indicated that it will uphold the terms of the concessions in implementing the proposal, the terms of a settlement in the event of expropriation differ for each concession agreement. Pending further details, RAM believes that the government will balance its plan against any implications to the bond market. The toll-road sector is one of the earliest and largest sectors in Malaysia to have tapped the debt capital markets. As at 15 May 2018, the sector comprised 23 issuers, with a notable RM52.83 billion of bonds and sukuk (excluding loan stocks) outstanding (RM39.79 billion of which are rated). These are largely held by local institutional investors and government-linked pension funds.

“Cashflow matching is a key rating driver for toll-road concessionaires. As concession terms are not uniform across the sector, the issue rating for each toll road would have to be assessed on a case-by-case basis, with an emphasis on the timing of and the eventual payment amount from the government, weighed against the financial obligations of the concessionaires,” highlights Chong Van Nee, RAM’s Co-Head of Infrastructure and Utilities Ratings.

In the interim, if tariffs are not implemented as per the toll-rate schedule in the concession agreements, the government is obligated to compensate concessionaires, as has happened in the past. The previous government has allocated a sum of RM448 million in Budget 2018 for compensation to toll concessionaires.

Analytical contact
Chin Wynn, CFA
(603) 7628 1170
chinwynn@ram.com.my

Chinthamani Thanneermalai
(603) 7628 1013
chinthamani@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

Date of release: 18 May 2018

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 2018 by RAM Rating Services Berhad’s

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