LEKAS’s C2/Stable Sukuk rating reaffirmed

KUALA LUMPUR: RAM Ratings has reaffirmed the C2/Stable rating of Lebuhraya Kajang-Seremban Sdn Bhd’s (LEKAS) RM633 million Junior Sukuk Istisna’ (Junior Sukuk) (2007/2025).

The rating takes into consideration the low likelihood of repayment of the Junior Sukuk as well as its deep subordination to the Company’s other debt obligations, namely its Redeemable Convertible Secured Islamic Debt Securities (RCSIDS) and Syndicated Term Loan (STL).

Following LEKAS’s debtrestructuring exercise in October 2013, repayments on its Junior Sukuk are not permissible until the STL and RCSIDS have been fully repaid.

Given the mismatch between LEKAS’s annual cash-generating capacity and the lumpy one-off repayment on the RCSIDS in April 2023, RAM maintained its view that the Company will have to refinance its RCSIDS upon maturity. LEKAS holds the concession for the 44-km Kajang-Seremban Highway (LEKAS Highway or the Highway) until May 2039.

“After two years of declines, LEKAS’s revenue hit a record high of RM79.8 million in FY18, driven by a turnaround in its long-haul traffic volume and the solid growth of its short-haul traffic.

“As the LEKAS Highway is a closed-toll expressway where long-distance commuters have a significant impact on its revenue, the marginal improvement in long-haul traffic had accordingly improved its revenue and earnings.

“Any risk of delays of compensation without any revision in scheduled tariff hikes could potentially lead to a default on its STL.

“We note that compensation from the Government of Malaysia (GoM) has been paid despite some delays, which is the advance payment for each year is usually only received in the third or fourth quarter. We believe the GoM will continue to honour the compensation arrangement in the event of non-revision, as observed to date.”

Similar to most concession-related projects, LEKAS is also exposed to regulatory and single-project risks.