Besraya’s AA3 sukuk rating reaffirmed, outlook revised to negative

KUCHING: RAM Ratings has reaffirmed the rating of Besraya (M) Sdn Bhd’s (Besraya) RM700 million Sukuk Mudharabah Issuance Facility ( 2011/ 2028) at AA3, but revised the outlook to negative from stable.

The revision of the rating outlook reflected RAM Ratings’ concern that Besraya’s recent dividend distribution of RM70 million in fiscal 2018 to the company’s shareholder and the construction of Kuchai Link 2 which will cost RM50 million over the next three years could cause the company’s minimum finance service coverage ratio to come in below the two-time threshold, under the ratings firm’s sensitised case, for AA3-rated transactions on sukuk payment dates between fiscal 2020 and 2023.

“During this period, annual repayments of the sukuk will be at their peak,” it said.

“It is crucial that cash retention is henceforth prioritised until the completion of the Kuchai overpass, and traffic normalises following the next toll- rate hike (scheduled for January 1, 2018).”

The sukuk rating may be downgraded in the absence of any outperformance of RAM Ratings’ sensitised cashflow assumptions over the next few years, which may result in a continuous dip in the company’s FSCR to below two times.

“Continued dividend payments may also put pressure on the rating.”

According to RAM Ratings, the reaffirmation of the rating is based on Besraya’s still steady cashflow coverage, underpinned by the established traffic profile of the 16.6-kilometre (km) Sungai Besi Highway (SBH) and the 12.3km Besraya Eastern Extension (BEE).

RAM Ratings noted that in financial year (FY) March 2017, the highways registered average daily traffic (ADT) growth of 2.2 per cent year on year ( y- o- y), largely fuelled by steady growth in the flow of traffic from the Loke Yew toll plaza of 10 per cent y-o-y.

However, it noted that the Mines toll plaza’s ADT which has yet to recover since the last toll-rate hike in October 2015, continued to contract marginally in the first five months (5M) FY March 2018.

Accordingly, RAM Ratings has assumed lower traffic growth of 0.5 per cent and a contraction of 2.8 per cent on the highways in FY March 2018 and FY March 2019, respectively, following the next toll rate hike, due on January 1, 2018.

Thereafter, traffic growth is anticipated to recover at an average of 1.7 per cent per annum throughout the remaining tenure of the sukuk.