DUKE 3 SUKUK GETS STABLE OUTLOOK
MARC affirms ‘AA-IS’ rating on RM3.64b bond as firm making sufficient construction progress
MALAYSIAN Rating Corp Bhd (MARC) has affirmed its AAIS rating on Lebuhraya DUKE Fasa 3 Sdn Bhd’s (DUKE 3) RM3.64 billion sukuk wakalah, with a stable outlook.
MARC affirmed its ratings as DUKE 3 is making sufficient progress on construction. In addition, the agency said the adequately structured sukuk repayment profile has accommodated the traffic ramp-up of the DUKE Phase 3 expressway.
DUKE 3, a wholly-owned sub- sidiary of Ekovest Bhd, is the concessionaire of the 32.1km DUKE Phase 3 expressway here under an agreement with the government ending August 5 2069.
The expressway is currently under construction and will connect the Middle Ring Road 2 in Wangsa Maju to the Kerinchi Link when completed.
The overall progress of the DUKE Phase 3 expressway stood at 3.32 per cent as at the end ofJune, against the scheduled progress of seven per cent.
MARC said the slower progress could be attributed to delays in highway design works.
However, the targeted completion date of December 31 2019 remains unchanged, as the progress shortfall was expected to narrow with the addition of more manpower during structural works, it said.
“Should there be any costs arising from the delay, it would be passed to the contractor through the back-to-back liquidated ascertained damages arrangement under the fixed-sum contract,” said MARC.
The agency said as at July 31, DUKE 3 has incurred RM751 million on the project, while designated account balances stood at RM3.8 billion.
MARC said a timely disbursement of reimbursable interest assistance (RIA) totalling RM560 million from the government was crucial to meeting the project’s payment milestones.
The first scheduled RIA payment of RM100 million was only received last month.
DUKE 3 has yet to receive the second RIA payment of RM250 million, scheduled for this year. The final RIA disbursement of RM210 million is scheduled for next year.
If the RIA payments are not forthcoming by the end of next year, DUKE 3 could face challenges in meeting the project’s cost, estimated at RM5 billion.
DUKE 3’s project cash flow coverage has been unchanged since the rating was first assigned. The average finance service cover ratio (FSCR) of 2.46 times the sukuk tenure is supportive of the current rating level.
MARC’s sensitivity analysis also indicates that DUKE 3’s FSCR would remain resilient under adverse scenarios.
“The project’s cash flow can withstand up to 11 per cent construction cover overrun, or up to 12 months’ delay in the tolling operations date, before breaching the FSCR covenant of 1.50 times in 2023 and 2026, respectively,” said MARC.