MARC Ratings has affirmed Grand Sepadu (NK) Sdn Bhd’s RM210.0 million Sukuk Murabahah rating at AA-_IS with a stable outlook.

The rating affirmation reflects Grand Sepadu’s stable performance, supported by resilient commercial traffic on its mature New North Klang Straits Bypass (NNKSB), improved leverage and coverage ratios driven by stronger revenue and reduced borrowings. However, uncertainties surrounding the implementation of scheduled toll rate hikes and the timing of future government compensation, moderate the rating.

Under a concession expiring in December 2032, Grand Sepadu operates the 17.5-km NNKSB, which includes four toll plazas, namely Bukit Raja, Kapar, Kapar Westbound and Kapar Eastbound. In 2022 and 1Q2023, average daily traffic rose 17.2% y-o-y to 86,059 vehicles and 6.4% y-o-y to 87,984 vehicles. Reflecting the positive recovery, total revenue (excluding government compensation of RM21.8 million) increased almost 14% y-o-y, from RM45.2 million in 2021 to RM51.3 million in 2022. The Kapar toll plaza — where the number of Class 3 vehicles and toll rates are highest — remains NNKSB’s largest revenue contributor.

Coverage metrics have remained strong; cash flow coverage on interest and debt correspondingly increased to 6.2x and 0.32x in 2022 (2021: 6.0x; 0.30x). With scheduled repayments of its sukuk, Grand Sepadu’s only borrowing, debt-to-equity ratio was lower at 0.8x before further improving to 0.5x as of June 2023. Currently, the outstanding balance stands at RM60 million.

We project Grand Sepadu to generate positive cash flow from operations of between RM48 million and RM72 million over the next three years on expectations that traffic volume is to fully recover to pre-pandemic levels by end-2023. This would support liquidity and provide Grand Sepadu with the capacity for debt repayment. Our sensitised scenarios project the pre-distribution finance service cover ratio (FSCR) to be above the covenanted 1.75x in 2023 and 2024. FSCR is likely to be below the covenanted 1.75x from 2025, primarily due to the distribution of dividends in the same quantum as assumed by management in the base case. That said, we expect Grand Sepadu to exercise disciplined distribution and manage its cash retention, ensuring liquidity and leverage metrics are not jeopardised.