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02 Dec | Thursday
RAM Ratings reaffirms AA2/Stable rating of Kesas’ sukuk
RAM Ratings has reaffirmed the AA2/Stable rating of Kesas Sdn Bhd’s (the Company) RM735 mil Sukuk Musharakah Islamic Medium-Term Notes (2014/2023) (the Sukuk). The reaffirmation of the rating is based on our expectation that the Company will maintain its robust cashflow, underscored by the established traffic profile of the Shah Alam Expressway (SAE or the Expressway) and strong recovery in traffic post-pandemic.
 
Prolonged movement restrictions significantly reduced the SAE’s traffic volumes in FY Jul 2021. The weaker traffic volume led to a decline in toll revenue of RM72 mil in FY Jul 2021 as compared to FY Jul 2019 (pre-pandemic). However, we expect a strong rebound in traffic as movement restrictions have eased considerably. The Expressway’s average daily traffic (ADT) rebounded 38% m-o-m to 224,000 vehicles in September 2021 as the Klang Valley entered Phase 2 of the National Recovery Plan.
 
Our cashflow projections caps ADT recovery to 95% of pre-pandemic levels, which is in line with the level of traffic observed in September 2020 during the Recovery MCO phase. This limit takes into account some weakness in traffic prior to the pandemic, namely the migration to public transportation and alternative roads that run parallel to the SAE. We also assume a one-year delay in the receipt of compensation payments from the Government of Malaysia (GoM), with toll rate hikes scheduled for 2023. Though unclear if a toll rate hike at the Expressway is plausible, we have stress-tested the SAE’s traffic and cashflow resilience should it occur.
 
We expect Kesas’ minimum finance service coverage ratio (FSCR) to remain strong at 2.25 times up to the Sukuk maturity on 10 August 2023. This FSCR level remains commensurate with the rating threshold of AA2 RAM-rated expressways. On the latest payment date of 8 October 2021, Kesas’ FSCR stood at 2.66 times (with cash balances, post-distribution), supported by its healthy average annual pre-financing cashflow and sizeable cash reserves.
 
Although we assume delayed compensation payments in our cashflow analysis, we highlight that Kesas has been receiving compensation promptly from the GoM in lieu of tariff increases, as per its concession agreement. We believe the GoM will continue to honour the compensation arrangement in the event of non-revision of toll rates. As with most concession-related projects, Kesas is inherently exposed to single-project risk, although the entire stretch of the SAE is unlikely to be disrupted at any one time.
 
In May 2021, Gamuda Bhd (Gamuda), which owns 70% of Kesas through Kesas Holdings Berhad, announced it was in talks with the government to sell its four highway concessions (including the SAE) to a private highway trust. Under Gamuda’s proposal, toll hikes will be waived in exchange for an extension to the concession tenures. As the proposal has yet to be finalised, we did not factor this outcome into our rating. We will continue to monitor these developments and reassess when more details are made known.
  
 
Analytical contacts
Lee Yee Von
(603) 3385 2503
yeevon@ram.com.my
 
Davinder Kaur Gill
(603) 3385 2525
davinder@ram.com.my
 
Date of release: 2 December 2021
 
 
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 2021 by RAM Rating Services Berhad
RAM Ratings has reaffirmed the AA2/Stable rating of Kesas Sdn Bhd’s (the Company) RM735 mil Sukuk Musharakah Islamic Medium-Term Notes (2014/2023) (the Sukuk). The reaffirmation of the rating is based on our expectation that the Company will maintain its robust cashflow, underscored by the established traffic profile of the Shah Alam Expressway (SAE or the Expressway) and strong recovery in traffic post-pandemic.
 
Prolonged movement restrictions significantly reduced the SAE’s traffic volumes in FY Jul 2021. The weaker traffic volume led to a decline in toll revenue of RM72 mil in FY Jul 2021 as compared to FY Jul 2019 (pre-pandemic). However, we expect a strong rebound in traffic as movement restrictions have eased considerably. The Expressway’s average daily traffic (ADT) rebounded 38% m-o-m to 224,000 vehicles in September 2021 as the Klang Valley entered Phase 2 of the National Recovery Plan.

Table 1: ADT by toll plaza
FY Jul 2019 2020 2021
  ADT y-o-y change (%) ADT y-o-y change (%) ADT y-o-y change (%)
Awan Besar/Kecil 110,581 -3.3 89,035 -19.5% 73,780 -17.1%
Sunway 114,362 -0.6 93,545 -18.2% 77,767 -16.9%
Kemuning 96,550 -0.8 81,819 -15.3% 72,466 -11.4%
Total 321,493 -1.6 264,400* -17.8% 224,013 -15.3%
Source: Kesas
* Total ADT does not tie to the sum of respective ADT by toll plaza due to rounding.
 
 
Our cashflow projections caps ADT recovery to 95% of pre-pandemic levels, which is in line with the level of traffic observed in September 2020 during the Recovery MCO phase. This limit takes into account some weakness in traffic prior to the pandemic, namely the migration to public transportation and alternative roads that run parallel to the SAE. We also assume a one-year delay in the receipt of compensation payments from the Government of Malaysia (GoM), with toll rate hikes scheduled for 2023. Though unclear if a toll rate hike at the Expressway is plausible, we have stress-tested the SAE’s traffic and cashflow resilience should it occur.
 
We expect Kesas’ minimum finance service coverage ratio (FSCR) to remain strong at 2.25 times up to the Sukuk maturity on 10 August 2023. This FSCR level remains commensurate with the rating threshold of AA2 RAM-rated expressways. On the latest payment date of 8 October 2021, Kesas’ FSCR stood at 2.66 times (with cash balances, post-distribution), supported by its healthy average annual pre-financing cashflow and sizeable cash reserves.
 
Although we assume delayed compensation payments in our cashflow analysis, we highlight that Kesas has been receiving compensation promptly from the GoM in lieu of tariff increases, as per its concession agreement. We believe the GoM will continue to honour the compensation arrangement in the event of non-revision of toll rates. As with most concession-related projects, Kesas is inherently exposed to single-project risk, although the entire stretch of the SAE is unlikely to be disrupted at any one time.
 
In May 2021, Gamuda Bhd (Gamuda), which owns 70% of Kesas through Kesas Holdings Berhad, announced it was in talks with the government to sell its four highway concessions (including the SAE) to a private highway trust. Under Gamuda’s proposal, toll hikes will be waived in exchange for an extension to the concession tenures. As the proposal has yet to be finalised, we did not factor this outcome into our rating. We will continue to monitor these developments and reassess when more details are made known.
  
 
Analytical contacts
Lee Yee Von
(603) 3385 2503
yeevon@ram.com.my
 
Davinder Kaur Gill
(603) 3385 2525
davinder@ram.com.my
 
Date of release: 2 December 2021
 
 
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 2021 by RAM Rating Services Berhad
source: RAM Rating Services
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