MARC has affirmed its AAIS rating on ANIH Berhad’s RM2.5 billion Senior Sukuk Musharakah Programme with a stable outlook. ANIH is the concessionaire of Kuala Lumpur-Karak Highway (KL-Karak) and Phase 1 of East Coast Expressway (ECE1) until 2032.
The rating reflects the company’s strong operating cash flow generation, underpinned by the two highways’ steady traffic and revenue profile. The rating also benefits from the subordinated and equity-like features of ANIH’s RM620 million Junior Bonds, allowing the company to withstand a degree of operational underperformance. Moderating the rating, however, is ANIH’s highly leveraged capital structure.
Traffic on the mature KL-Karak and ECE1 has shown a steady, albeit moderate growth, increasing at a compound annual growth rate (CAGR) of 1%-2% over FY2015-FY2019. However, the COVID-19 pandemic has created an overall challenging environment for the road sector, with traffic volumes largely influenced by responses to the virus and the level of travel restrictions imposed to slow its spread. Traffic on KL-Karak and ECE1 fell 38.4% and 24.8% in FYE March 2021 (FY2021), with the worst observed in April 2020 where traffic declined by about 90% for KL-Karak and 87% for ECE1. Traffic in 5MFY2022 (April-August 2021) was still about 50% below the level in the previous corresponding period. However, we note that in the periods during the pandemic when restrictions were lifted or eased (notably June-August 2020), traffic quickly rebounded to levels at or above pre-pandemic. Thus, we see the recent lifting of the interstate travel ban as positive.
Although the timing and shape of recovery is still uncertain, and risks remain, we believe traffic should recover from peak contractions. Accordingly, we expect traffic declines to ease to around 30%-35% y-o-y for FY2022 and to gradually return to pre-pandemic levels by FY2024. In our rating case, we have assumed a 30% traffic decline on both KL-Karak and ECE1 in FY2022, a recovery to 90% of FY2020’s traffic levels in FY2023, a full traffic recovery by FY2024 and a traffic growth of 1%-2% thereafter (tracking the five-year CAGR prior to the pandemic). Under this scenario, average and minimum financial service cover ratio (FSCR) are projected at 1.9x and 1.8x (FY2026) against the covenanted 1.75x. We highlight, however, that these are under our more conservative assumptions of no toll hikes and no toll compensations except for the amount already received in FY2022. As at December 13, 2021 the outstanding sukuk stood at RM1.64 billion and its next principal repayment of RM160.0 million is due on November 29, 2022 for which the company has sufficient liquidity as at date.