MARC has affirmed itsAAAIS rating on Projek Lebuhraya Usahasama Berhad’s (PLUS) RM23.35 billion Sukuk Musharakah Programme with a stable outlook. The outstanding currently stands at RM17.9 billion.
The rating benefits from a two-notch uplift to PLUS’ standalone rating to reflect our view of strong government linkages exhibited in the interdependence between default events for the rated sukuk and the RM11.0 billion government-guaranteed sukuk maturing after the rated programme. The government’s golden share and indirect major shareholding in PLUS further support our view.
Meanwhile, PLUS’ standalone rating reflects its mature roads’ history of stable traffic and revenue profile. Though traffic levels were impacted by pandemic-induced shutdowns, we note that traffic flow has improved since the easing of travel restrictions nationwide and we believe that it will gradually return to pre-pandemic levels, absent anymore movement restrictions. Average traffic fell by 23.9% y-o-y in 8M2021 while 1H2021 revenue dropped 14.9% y-o-y to RM1.2 billion.
Notwithstanding the impact of the COVID-19 pandemic to the traffic volume in the last 12-18 months, PLUS’ road networks have historically demonstrated very low volatility, with peak-to-trough volume variance of just about 2% during 2016-2019. We note that in the periods during the pandemic when restrictions were lifted or eased, traffic on PLUS’ roads rebounded strongly close to pre-pandemic levels. Although the timing and shape of recovery are still uncertain, we believe traffic should recover progressively in 2022 from the COVID-19 shock in 2020-2021, and expect a full recovery by 2023.
PLUS also has sufficient liquidity to address debt maturities. As at end-June 2021, it had RM2.8 billion in cash, providing ample cushion against RM2.1 billion of principal and profit obligations due in 2022. Despite the challenges posed by the pandemic, free cash flow remained positive at approximately RM820.3 million in 1H2021, supported by reduced capex. Overall, the visibility on free cash flow will hinge on the extent PLUS can re-profile its capex and dividend payouts. PLUS would likely remain in cash conservation mode in the short and medium term in light of the challenging operating environment and as such, could hold back from dividend distribution to ensure key financial metrics remain healthy. We continue to derive comfort that any coupon payment on the redeemable convertible unsecured loan stock (RCULS) is subject to the restrictive distribution covenant of 2.0x.