MRCB South­ern Link sukuk rat­ing reaf­firmed

> RAM Rat­ings keeps RM845m se­nior is­sue at BB3, with nega­tive out­look

The Sun (Malaysia) - - SUNBIZ -

PETALING JAYA: RAM Rat­ings’ rat­ing on MRCB South­ern Link Bhd’s (MSLB) RM845 mil­lion se­nior sukuk could be down­graded in the com­ing months should the in­dica­tive buy­out of­fers for the 8.2km East­ern Dis­per­sal Link (EDL) Ex­press­way not ma­te­ri­alise and/or make head­way in re­fi­nanc­ing plans.

“Given the per­sis­tent mis­match be­tween the com­pany’s cash gen­er­at­ing abil­ity and an­nual debt re­pay­ments (ow­ing to weak traf­fic vol­umes since com­mence­ment of tolling at the EDL), the rat­ing of the sukuk could be down­graded in the com­ing months should the in­dica­tive buy­out of­fers not ma­te­ri­alise and/or the com­pany not make any head­way in its re­fi­nanc­ing plans,” said RAM in a state­ment yes­ter­day.

It reaf­firmed MSLB’s sukuk at BB3 with a nega­tive out­look.

“While we re­main con­cerned about the com­pany’s strained liq­uid­ity po­si­tion, the Bursa Malaysia an­nounce­ment made on Oct 14, 2016 could pave the way for a longer term so­lu­tion,” RAM said.

Last week MRCB an­nounced that it re­ceived two in­dica­tive of­fers from PLUS Malaysia Bhd and an undis­closed client rep­re­sented by ZJ Ad­vi­sory Sdn Bhd.

The com­pany had sought len­ders’ ap­proval to de­fer a prin­ci­pal pay­ment un­der its term loan fa­cil­ity from July 2016 to Novem­ber 2016, due to in­suf­fi­cient funds.

“Given the com­pany’s per­sis­tent tight liq­uid­ity po­si­tion, we do not dis­count fur­ther de­fer­ral of prin­ci­pal pay­ments un­der the term loan. De­spite this, we have been in­formed that the profit pay­ments un­der the se­nior sukuk will con­tinue to be paid on its due date.”

MSLB’s cash bal­ances stood at RM30.03 mil­lion as at end-Septem­ber 2016. Cou­pled with the op­er­at­ing cash­flow over the next few months, the com­pany should have suf­fi­cient in­ter­nal funds to meet its dues un­der the term loan in Novem­ber 2016.

RAM’s anal­y­sis as­sumes the draw­down of the com­pany’s RM59.35 mil­lion fi­nance ser­vice re­serve ac­count bank guar­an­tee to help al­lay the cash short­falls in hon­our­ing its fi­nan­cial obli­ga­tions till Jan­uary 2018 (over the next 15 months), be­fore again fac­ing a cash­flow short­fall in re­pay­ing its term loan.

“Any de­fault on the term loan will re­sult in a cross-de­fault on the se­nior sukuk as they rank pari passu in terms of cash­flow and se­cu­rity,” it added.

The con­ces­sion­aire’s pro­jected toll rev­enue has been un­der­mined by low­erthan-ex­pected traf­fic vol­umes since the com­mence­ment of tolling in Au­gust 2014.

Av­er­age daily traf­fic (ADT) on EDL came in marginally be­low ex­pec­ta­tions at 43,412 ve­hi­cles in 2015 (RAM’s pro­jec­tion: 43,723 ve­hi­cles). ADT de­clined a fur­ther 1.6% to 42,716 ve­hi­cles for the first nine months of 2016 and is an­tic­i­pated to de­crease by 1.8% in 2016 in view of the volatil­ity of traf­fic.

“MSLB is a fund­ing con­duit for the EDL. The com­pany’s fi­nan­cial com­mit­ments will be sup­ported by backto-back pay­ments from MSLB. Recog­nis­ing the strong credit link be­tween the two en­ti­ties, we view them in ag­gre­gate from a credit stand­point,” said RAM.

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