• 17 Jul

    RAM maintains negative outlook of MRCB South Link's RM845m Sukuk

    RAM Ratings has reaffirmed the rating of MRCB Southern Link Bhd’s RM845mil Senior Sukuk at BB3/negative over the cash shortfall it is expected to face in repaying its dues in June 2018.

    It said on Thursday this also coincided with the commencement of principal repayments of the Senior Sukuk.

    RAM Ratings said the rating reflected the continued low safety of payment of MRCB Southern Link’s financial obligations. 

    “Given the persistent mismatch between MRCB Southern Link’s annual cash generation and annual debt repayment owing to the lower than expected traffic volume of the 8.62-km Eastern Dispersal Link (EDL), the company continues to rely on shareholder support to repay its dues,” it said.

    The ratings agency pointed out the parent company, Malaysian Resources Corporation Bhd (MRCB), had over the last two years injected RM58mil into the company.

    On June 21, 2017 MRCB injected an additional RM67mil to fully repay the company’s term loan lenders. 

    “The negative outlook on the rating, meanwhile, is premised on our concerns over the cash shortfall that the company is expected to face in repaying its dues in June 2018, which coincides with the commencement of principal repayments of the Senior Sukuk. 

    “In this regard, in the absence of a cash infusion from MRCB, the Company is anticipated, in the interim, to utilise its Finance Service Reserve Account bank guarantee facility (FSRA BG) of RM59.35mil to avert any potential default under the Senior Sukuk until June 2019. 

    “We expect to downgrade the Senior Sukuk rating over the next 12-18 months should there be concerns over heightened default risk and a strained liquidity position owing to further deterioration in traffic or an absence of financial support from MRCB,” it said.

    Lower-than-envisaged traffic volumes since the commencement of tolling in August 2014 have undermined the projected toll revenue of the concessionaire, MRCB Lingkaran Selatan Sdn Bhd. 

    It pointed out average daily traffic (ADT) on the expressway was marginally lower at 42,026 vehicles in FY ended December 2016 compared with RAM’s expectations of 42,631 vehicles). 

    In the five months ended April 2017, ADT declined a further 6.6% to 39,264 vehicles. The ADT is anticipated to drop 10% in 2017 due to the introduction of the Malaysian Road Charge on Nov 1, 2016 (RM20) and the Singapore Reciprocal Road Charge on Feb 15, 2017 (SG$6.40), payable for all foreign-registered vehicles entering both countries through the Causeway and the Second Link. 

    “While we do not expect any toll rate hike in 2018, we have assumed that there will be no growth in the EDL’s ADT. 

    'Thereafter, our sensitivity analysis has factored in the impact of an expected tariff increase in 2019 which would lead to a further 3% reduction in ADT,” it said.

    MRCB Southern Link is a funding conduit for the EDL. The company’s financial commitments will be supported by back-to-back payments from MRCB Lingkaran Selatan. 

    “Recognising the strong credit link between the two entities, we view them in aggregate from a credit standpoint,” said RAM Ratings

     


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