RAM Ratings downgrades Smart Holdings’ sukuk rating
KUALA LUMPUR: RAM Ratings has downgraded the rating of Projek Smart Holdings Sdn Bhd’s (Smart Holdings) IMTN Facility of up to RM330 million in nominal value (2015/2032) from AA2 to A1.
According RAM Ratings’ press statement, the decision to downgrade its sukuk rating was premised on the company’s deteriorating debt-servicing indicators following a persistent downtrend in traffic at the Stormwater Management and Road Tunnel Project (Smart Tunnel).
“While the tunnel had previously enjoyed strong annual traffic growth (CAGR of 13.3 per cent in its first seven years), since its toll rate hike in October 2015, traffic flow at the tunnel has shrunk 30 per cent (up to end-2017).
“The lower average daily traffic (ADT) has reduced the revenue and earnings of Syarikat Mengurus Air Banjir dan Terowong Sdn Bhd (SMART), and this has, in turn, crimped the residual cashflow available to service the sukuk,” it explained.
Meanwhile, it maintained the sukuk’s rating long-term outlook at negative to reflect its expectation of further rating pressure should traffic keep declining, especially with a step-up in the sukuk annual repayments from fiscal 2022 onwards.
“While a turnaround in traffic performance over the medium to long term is probable, particularly given the impetus from the Tun Razak Exchange and Bandar Malaysia developments at either end of the Tunnel, we remain concerned about the tunnel’s short-term performance.
“This is especially pertinent as two more rate hikes have been scheduled over the next three years. Our analysis assumes that the company may register a minimum finance service coverage ratio (with cash balances, post-distribution) of 1.88 times, which commensurate with an A rating, should traffic contraction abate and regularise with an average ADT of 22,483 vehicles over the next three years (ADT in 2017: 22,382 vehicles).
“Smart Holdings is currently in discussion with Gamuda Bhd