Posted Date: January 5, 2021

MARC has affirmed its AA-IS rating on Cerah Sama Sdn Bhd's (Cerah Sama) RM420.0 million sukuk with a stable outlook. 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 the company's (1) resilient cash flows and stable revenue base (underpinned by the steady traffic performance of the mature Cheras-Kajang Highway); (2) strong cash reserves; and (3) the accommodative sukuk repayment structure. Moderating the rating is Cerah Sama's leveraged capital structure, with a debt-to-equity ratio of 4.1x as at 1H2020.

The stable rating outlook reflects MARC's assessment that Cerah Sama will be able to generate sufficient cash flow and maintain healthy cash levels to meet its financial obligations. MARC also expects Cerah Sama will exercise discipline with dividends and maintain its strong liquidity profile.

Traffic levels at its Batu 9 and Batu 11 toll plazas were affected by the Movement Control Order (MCO) imposed by the government to contain the COVID-19 pandemic. In aggregate, average daily traffic in 9M2020 was down 20.7% y-o-y to 117,601 vehicles, largely a result of the 53.8% dip in traffic flow during the MCO period between March and May 2020. However, traffic has rebounded strongly since the easing of movement restrictions, with traffic between June and September 2020 reaching volumes just 5%-6% below the corresponding period in 2019.

The company maintains a relatively strong liquidity position, supported by RM90.1 million of cash and cash equivalents as at October 31, 2020. This should be sufficient to meet the sukuk's RM39.97 million principal and profit obligations due on January 29, 2021.

Under Cerah Sama's base case forecasts, minimum and average pre-distribution finance service cover ratios (FSCR) with cash balance are projected at 2.4x and 3.0x over the 2020-2030 period, well above the covenanted FSCR of 1.75x. Under MARC's sensitised scenario of a 20% fall in traffic volume in 2021 compared to 2019, minimum FSCR is still projected to stay above 1.75x. Incorporating a one-year delay in the scheduled 2025 toll hike to 2026 and a one-year delay in the payment of toll compensation, however, could have a more significant impact on the FSCR. Prudent dividend upstreaming becomes increasingly important in this regard.

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

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