MARC Ratings has affirmed its AAAIS(s) rating on Projek Lebuhraya Usahasama Berhad’s (PLUS) RM25.2 billion Islamic Medium-Term Notes Programme (sukuk programme) with a stable outlook.
The rating incorporates a two-notch rating uplift from PLUS’ standalone rating of AA. The uplift is supported by the irrevocable and unconditional Letter of Undertaking (LoU) provided by the government through the Ministry of Finance, to cover any cash shortfall in meeting a minimum LoU finance service cover ratio of 2.0x on the determination date for the duration of the sukuk programme.
PLUS’ close credit link to the government is further evident in the interdependence between the default events of the sukuk programme and its RM11.0 billion government-guaranteed sukuk, which is repayable only after the full redemption of the former. The government’s golden share and significant indirect stake in PLUS, along with the importance of its North-South Expressway in Malaysia’s transportation system, further underline the rating agency’s views on the government’s support for the toll concessionaire.
PLUS’ standalone rating reflects its matured highway portfolio, characterised by a history of stable traffic and revenue performance. Overall, traffic in 2022 and 7M2023 showed strong growth, increasing by 67% y-o-y (due to a sharp rebound from pandemic-induced restrictions) and 8% y-o-y over prior corresponding periods. This positive trend has translated into higher tolling revenue of RM1.9 billion (up 6% y-o-y) and broader operating profit before interest and tax margin in 7M2023. MARC Ratings expects the traffic pickup to continue through 2023 but volume therefrom to return to a normalised and steady growth rate of 1.0% to 1.5% p.a., as historically seen.
Sufficient liquidity with RM3.0 billion of cash available as at end-July 2023 and the stable and strong cash flow generation provide PLUS with ample headroom to cover its forecasted commitments including capex and financial obligations over the next 12 months. The rating agency believes PLUS has flexibility to adjust its capex if necessary — as has been demonstrated in the past — to maintain its credit metrics. Additionally, there is also flexibility to spread the repayment schedule, all currently assumed to be within and up to 2052, to the programme’s final maturity date in 2058, coinciding with the extension of the concession period from 2038 to 2058.