MARC Ratings has affirmed its AA-IS and A- ratings on Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd’s (Kesturi) RM2.3 billion Sukuk Musharakah (Senior Sukuk) and RM180 million Redeemable Secured Junior Bonds with a stable outlook.
Kesturi benefits from its highway routes linking matured and densely populated areas, such as Damansara, Mont Kiara, Sri Hartamas, Ulu Kelang and Setiawangsa, with the city centre. The ratings incorporate the highways’ easy accessibility and wide connectivity to other major highways in the Klang Valley, as well as their stable commuter traffic base. Traffic which fell sharply in 2020/2021 amid the COVID-19 pandemic, has since surpassed the pre-pandemic level by nearly 14% in 8MFY2023 (July 2022-February 2023).
The 14-year-old DUKE 1 has a mature traffic profile with low but steady traffic growth averaging 1.35% p.a. over the past five years, excluding periods impacted by the pandemic. DUKE 2 is relatively young (opened to public in October 2017) and its traffic has been growing steadily with an expected average growth of 3% p.a from 2024 to 2028 and 1% p.a from 2029 to 2034. Under MARC Ratings’ sensitised case of a moderate 1%-3% growth between FY2023 and FY2034, average senior financial service cover ratio is around 3.4x. Coverage is also projected to remain strong, averaging 2.8x under flat traffic and toll tariff assumptions, as well as a one-year delay in government compensation.
Total borrowings saw a slight reduction to RM2.1 billion as at end-2022 due to RM100 million repayment of the sukuk, and are expected to reduce progressively in line with scheduled repayments. Debt-to-equity (DE) ratio stood at 22.3x as at end-June 2022 versus around 23.6x as at end-June 2021. While this has trended down to 14.7x as at end-December 2022 on improving profitability and lower borrowings, we still view the current leverage level as high. However, as traffic levels are likely to continue on a positive trajectory, we expect further improvement in the DE ratio.
Liquidity is deemed adequate, with RM92.8 million in cash and cash equivalents as of end-2022 and projected operating cash flow of around RM295 million in 2023. This is sufficient to cover the Senior Sukuk’s upcoming profit payments of RM95.5 million and principal repayments of RM140.0 million due on December 2, 2023. Kesturi also retains financial flexibility in the form of the long remaining life of its concession ending August 2059, with an option to extend for another 10 years. This could afford the company an avenue for refinancing, if required.