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Press Release
19 Dec | Wednesday
RAM Ratings reaffirms LEKAS’s C2/Stable sukuk rating
RAM Ratings has reaffirmed the C2/Stable rating of Lebuhraya Kajang-Seremban Sdn Bhd’s (LEKAS or the Company) RM633 million Junior Sukuk Istisna’ (Junior Sukuk) (2007/2025). The rating takes into consideration the low likelihood of repayment of the Junior Sukuk as well as its deep subordination to the Company’s other debt obligations, i.e. its Redeemable Convertible Secured Islamic Debt Securities (RCSIDS) and Syndicated Term Loan (STL). Following LEKAS’s debt-restructuring exercise in October 2013, repayments on its Junior Sukuk are not permissible until the STL and RCSIDS have been fully repaid. Given the mismatch between LEKAS’s annual cash-generating capacity and the lumpy one-off repayment on the RCSIDS in April 2023, we maintain our view that the Company will have to refinance its RCSIDS upon maturity. LEKAS holds the concession for the 44-km Kajang-Seremban Highway (LEKAS Highway or the Highway) until May 2039.
 
After two years of declines, LEKAS’s revenue hit a record high of RM79.8 million in FY Mar 2018, driven by a turnaround in its long-haul traffic volume (+1.07% y-o-y) and the solid growth of its short-haul traffic (+9.47% y-o-y). As the LEKAS Highway is a closed-toll expressway where long-distance commuters have a significant impact on its revenue, the marginal improvement in long-haul traffic had accordingly improved its revenue and earnings. 
 
Any risk of delays of compensation without any revision in scheduled tariff hikes could potentially lead to a default on its STL. We note that compensation from the Government of Malaysia (GoM) has been paid despite some delays, i.e. the advance payment for each year is usually only received in the third or fourth quarter. We believe the GoM will continue to honour the compensation arrangement in the event of non-revision, as observed to date.  
 
Similar to most concession-related projects, LEKAS is also exposed to regulatory and single-project risks. 
 
 
Analytical contact
Ong Ju Laine
(603) 7628 1183
julaine@ram.com.my
 
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
 
Date of release: 19 December 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
Ó Copyright 2018 by RAM Rating Services Berhad
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