Abolishing tolls a test of PPPs for stakeholders: MARC

PETALING JAYA: Malaysian Rating Corp Bhd (MARC) said while the government’s move to abolish toll charges would minimise impact on public finances, it will be a test of publicprivate partnerships (PPPs) for project owners, debt holders and the public sector, and may impact other segments of infrastructure financing.

The rating agency which rates 10 toll concessionaires with an aggregate outstanding amount of RM33.1 billion, have attached the “developing” designation, which conveys the uncertainty surrounding the credit trajectory of the affected issuers arising from the proposed abolition of road tolls, to all issue ratings in the toll universe.

MARC believes that the approach the government will take to abolish tolls would be to minimise the impact on public finances and forestall any untoward effect on capital markets.

“Available options include an early termination of the affected concessions and the renegotiation of concessions possibly involving the conversion of the ‘user pays’ toll roads to long tenure shadow toll roads in which no actual tolls are collected from the public,” it said.

The importance of toll revenue as a funding source for infrastructure construction and maintenance has risen over the years.

In more recent times, however, concession tenures were extended to compensate concessionaires for toll revenue losses which arose from the abolition of tolls at selected toll collection points and the deferment of scheduled toll increases.

“Notwithstanding these measures, the government’s annual cash compensation commitments pursuant to deferred toll hikes have remained sizeable in aggregate.

“For a significant number of project bonds and sukuk in MARC’s toll road universe, the timely implementation of scheduled toll hikes and/or payment of cash compensation for toll hike deferments is referenced as an important recurring rating consideration,” MARC said in its note.

Large-scale greenfield toll road concession projects with demand risk have been mainly financed with bonds and sukuk. A defining characteristic of domestic toll concessionaires it said, is the high proportion of project bonds or sukuk in their capital structure, the rating agency added.