MAJU HOLDINGS BONDS DOWNGRADED

Outlook at ‘negative’ amid rising completion risk to MEX II highway project, says MARC

MALAYSIA Rating Corp Bhd (MARC) has lowered the rating of Maju Holdings Sdn Bhd’s RM1.3 billion sukuk and RM150 million bonds.

Maju Holdings is one of the parties keen to take over PLUS Malaysia Bhd, the country’s largest highway operator.

The downgrades reflected the lack of progress at Maju Holdings’ Putrajaya-KLIA Highway (MEX II) project, as well as the longer delay and consequent deterioration in its debt-servicing metrics, said MARC.

It downgraded the sukuk from “AA” to “A”, and the RM150 million junior bonds from “A” to “BBB”, with the outlook remaining “negative”.

The sukuk and bonds were issued through its subsidiary, MEX II Sdn Bhd.

“The ratings have been on ‘negative’ outlook mainly due to rising completion risk. This is due to the increasing uncertainty related to the development of the 16.8km MEX II project, in particular the completion and associated tolling date,” said MARC.

In July, MARC said MEX II was expected to be completed in March next year. The project was scheduled to finish this month.

It noted that MEX II encountered a setback when a stop-work order on the construction of Bridge 13 was issued in April.

Timely commencement of work on Bridge 13 was seen critical to the overall project completion.

MARC said the design documents had to be resubmitted for approval from related government agencies.

Due to the permit delay, the completion date was likely to be pushed forward by another four months to July next year.

However, slow progress in the past six months — at 83 per cent as at end of August— remained a serious concern, it added.

“Any constraints at Maju Holdings, the project owner and engineering, procurement and construction contractor, may impede the timely completion of the project.”

It said based on its assessment, a delay in tolling to after November next year could result in MEX II breaching its minimum covenanted finance service coverage ratio of 1.75 times.

MARC said the “negative” outlook reflected its concern that additional construction delays could result in a greater loss in MEX II’s financial metrics.

“Ratings could be downgraded further if MEX II continues to have execution issues and its progress does not improve materially over the next three to six months.

“Evidence that the project is likely to be completed within the current timeline, for example by July next year, and cost parameters, and whether tolling can start by September next year could stabilise the outlook.”

Meanwhile, it said the amount outstanding in the finance service reserve account of RM122.3 million as at end of August would be able to cover MEX II’s next three profit payments due this month and in April and October next year.

This will ease any pressure on profit obligations over the near term.

Meanwhile, Maju Holdings recently offered to reduce tolls by up to 36 per cent — from 25 per cent previously — under its amended proposal to take over PLUS Malaysia.

It also offered to bear the toll reduction in full and was not seeking financial compensation from the government for this.

The government owes PLUS Malaysia RM2.7 billion in toll compensation and Maju Holdings said if it were to take over PLUS Malaysia, it would absorb the RM2.7 billion compensation.

Ratings could be downgraded further if MEX II continues to have execution issues and its progress does not improve materially over the next three to six months.

MALAYSIA RATING CORP BHD