RAM Ratings: RM53 billion of toll-road bonds, sukuk to be impacted by tolls abolishment

KUALA LUMPUR: RAM Ratings expects bonds and sukuk issued by toll road concessionaires to be affected by the new administration’s proposed intention to abolish the imposition of highway tolls.

While the government has indicated that it will uphold the terms of the concessions in implementing the proposal, the terms of a settlement in the event of expropriation differ for each concession agreement.

Pending further details, RAM believed that the government would balance its plan against any implications to the bond market. The toll-road sector is one of the earliest and largest sectors in Malaysia to have tapped the debt capital markets.

As of May 15, 2018, the sector comprised 23 issuers, with a notable RM52.83 billion of bonds and sukuk (excluding loan stocks) outstanding (RM39.79 billion of which are rated).

These are largely held by local institutional investors and government-linked pension funds.

“Cashflow matching is a key rating driver for toll-road concessionaires.

“As concession terms are not uniform across the sector, the issue rating for each toll road would have to be assessed on a case-by-case basis, with an emphasis on the timing of and the eventual payment amount from the government, weighed against the financial obligations of the concessionaires,” highlighted Chong Van Nee, RAM’s Co-Head of Infrastructure and Utilities Ratings.

In the interim, if tariffs are not implemented as per the tollrate schedule in the concession agreements, the government is obligated to compensate concessionaires, as has happened in the past.