MARC has affirmed its A+_IS(s) rating on Projek Lintasan Sungai Besi-Ulu Klang Sdn Bhd’s (PLSUKE) Sukuk Wakalah Programme (Sukuk Wakalah) of up to RM2.0 billion. The rating outlook has been revised to stable from negative.

The previous negative outlook reflected a potential construction delay then in relation to the company’s Sungai Besi-Ulu Kelang Elevated Expressway (SUKE) project and the impact the delay would have on the credit profiles of both the issuer and immediate parent Projek Lintasan Kota Holdings (PROLINTAS). MARC has since lowered its rating assessment on PROLINTAS and accordingly revised the outlook from negative to stable, taking into account also the extension of time granted to PLSUKE by Lembaga Lebuhraya Malaysia to complete the project by November 2021, from August 2020 previously.

The Sukuk Wakalah issue rating is maintained at A+_IS(s) on MARC’s assessment of a high likelihood of financial support from ultimate parent Permodalan Nasional Berhad (PNB) that supports a two-notch rating uplift from the rating of PROLINTAS. The Sukuk Wakalah rating reflects PROLINTAS’ rating on the basis of its unconditional and irrevocable completion guarantee to cover potential cost overruns and shortfalls in the finance service reserve account and/or finance payment account during the construction period, if any. PROLINTAS has also given its corporate guarantee on PLSUKE’s principal repayments and profit payments vis-à-vis its Senior Facilities and Government Support Financing.

Concurrently, MARC has also affirmed its AAA_IS(fg)/Stable rating on PLSUKE’s Danajamin-Guaranteed Facilities (Danajamin-Guaranteed Sukuk) of up to RM500.0 million. Danajamin Nasional Berhad carries a long-term counterparty credit rating of AAA/Stable from MARC.

As at end-May 2020, SUKE was about 7% behind schedule, with completion standing at 74.8%. Progress was partly hindered by late approval that contributed to a delay in possession of a certain site at work package CA3 and was exacerbated by COVID-19-related challenges. Under MARC’s sensitised scenario which assumes a seven-month delay in the start of tolling (from PLSUKE’s internal target of May 2021), a gradual traffic growth of 3%-5% p.a. (versus PLSUKE’s 8%-9%), no toll increases or government compensations, the financial service cover ratio is still likely to stay above the covenanted 1.5x for 2021-2025. This is largely due to a sizeable RM1.06 billion in pre-funded cash and reserves. Nevertheless, principal repayment will continue to be materially constrained by the bullet-payment structure of PLSUKE’s Senior Facilities comprising the Sukuk Wakalah, Danajamin-Guaranteed Sukuk and its Syndicated Islamic Term Facilities; the Senior Facilities of up to RM4.7 billion are non-amortising and are due simultaneously in 2027.

PLSUKE is unlikely to generate enough cash flow in seven years to meet the bullet repayment, hence will likely require refinancing in 2027. In this regard, its relationship with PROLINTAS and PNB, as well as the long remaining tenure of the concession (minimum of 42 years from 2027), could provide room for such refinancing exercise.

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