Posted Date: March 11, 2020

MARC has affirmed its AA-IS rating on Cerah Sama Sdn Bhd's RM420 million sukuk. The rating outlook is stable. Cerah Sama is the investment holding company of Grand Saga Sdn Bhd, the concessionaire of the 11.5-km Cheras-Kajang Highway.

The rating affirmation reflects (1) Cerah Sama's resilient cash flows and revenue, underpinned by Cheras Kajang Highway's steady traffic growth; (2) its strong cash reserves; and (3) the accommodative repayment structure of the sukuk. Moderating the rating, however, is Cerah Sama's leveraged capital structure, with a debt-to-equity ratio of 4.2x as at end-December 2019. This is largely due to sizeable dividend payments.

The stable outlook reflects MARC's expectation that the concessionaire's operating and financial performance will remain broadly steady on a flat-to-modest traffic growth. The outlook also incorporates MARC's expectation that Cerah Sama will exercise discipline on its dividend distribution, ensuring its liquidity and leverage metrics are not compromised.

In 2019, average daily traffic (ADT) on the Cheras-Kajang highway grew 1.7% y-o-y to 148,161 vehicles, leading to higher revenue growth of 2.8% y-o-y to RM89.4 million. Cash flow from operations improved by 5.5% y-o-y to RM54.5 million. Cerah Sama's liquidity position remains strong, supported by cash and cash equivalents of RM118.9 million as of end-December 2019, fully sufficient to meet the sukuk's RM10.5 million profit obligations due on July 30, 2020 as well as RM40.5 million principal and profit obligations due on January 29, 2021.

Under MARC's sensitised case of 2.5% annual traffic growth (zero in periods of toll hikes), and incorporating a one-year delay in both the scheduled toll hikes and receipt of government toll compensation, the minimum financial service cover ratio (FSCR) with cash is projected to remain above the covenanted 1.75x. No increase in the toll rate throughout the sukuk tenure, however, would have a more significant impact on the FSCR. In this regard, we expect Cerah Sama to remain prudent with its dividend distribution to keep within the stated financial covenant.

Ati Affira Kholid, 03-2717 2941/ affira@marc.com.my;
Hafiza Abdul Rashid, 03-2717 2955/ hafiza@marc.com.my

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