MARC Ratings has affirmed its rating on toll concessionaire Lebuhraya DUKE Fasa 3 Sdn Bhd’s (DUKE 3) RM3.64 billion Sukuk Wakalah at AA-IS with a stable outlook.
The rating incorporates the adequately structured sukuk repayment profile that accommodates the traffic ramp-up on Setiawangsa-Pantai Expressway (SPE). The back-ended financing structure — with the first principal repayment of RM5.0 million due in 2023 and its gradual step-up feature — would provide some headroom for DUKE 3 to build up traffic volume, generate cash and meet its financial obligations. The rating also considers SPE’s well-positioned alignment within mature catchment areas. Being constructed under a concession agreement with the Malaysian government ending August 5, 2069, SPE will connect Middle Ring Road 2 at Wangsa Maju to Kerinchi Link adjoining Federal Highway.
As of March 25, 2022, the project achieved 92.47% completion rate. Due to the extended impact of the pandemic, Lembaga Lebuhraya Malaysia (LLM) had approved DUKE 3’s request for a second Extension of Time (EOT No. 2) to June 3, 2022, from October 31, 2021 under EOT No. 1. However, given the delays in utilities relocation and interface issues, the toll concessionaire has applied for another extension to December 23, 2022, which is pending approval from LLM.
We note that of the four sections of SPE, Section 4 (Wangsa Maju toll plaza) has commenced tolling since March 1, 2022. Given the completion delays on the other sections, we have revised our sensitivity analysis by incorporating a later tolling start date on the rest of the toll plazas to March 2023 (3-month delay) and June 2023 (6-month delay). Our sensitivity analysis reveals DUKE 3’s finance service coverage ratio (FSCR) with cash would meet the covenanted 1.5x up until FY2036 under our rating case. The cash position is supported by the RM90 million that project sponsor Ekovest Berhad will place into the Operating Revenue Account (ORA) upon completion of the project. At the same time, the RM184.5 million currently in the Construction Reserve Account will also be transferred into the ORA. The total RM274.5 million in the ORA — in the form of an irrevocable and unconditional bank guarantee — can be partly or fully drawn down when required to ensure the covenanted FSCR is maintained.
Meanwhile, construction cost–related risk is largely addressed by a fixed-priced, lump-sum turnkey engineering, procurement and construction contract with Ekovest Construction Sdn Bhd. We note that there are design enhancements to be carried out outside the original scope of the project worth RM417.2 million that will be covered by ultimate shareholder Ekovest via equity injection of an equivalent amount. The total amount claimed under the variation order as at end-April 2022 is RM405.97 million. As of January 5, 2022, Ekovest had injected a total of RM243 million, with the balance expected to be injected prior to the project completion.
Our assessment indicates no pressure on the company’s debt-servicing ability in the short to medium term given that it has RM712.6 million in cash and cash equivalents as at end-January 2022 to address liquidity risk. The current financing structure also provides DUKE 3 with a 31.5-year tail period, providing room for a refinancing exercise, if required.