MARC Ratings has assigned a preliminary rating of AAAIS to Amanat Lebuhraya Rakyat Berhad’s (ALR)
proposed sukuk programme of up to RM5.5 billion. The rating outlook is stable.
The assigned rating reflects the strength and the proven revenue-generating capacity of ALR’s portfolio of matured highways in the Klang Valley, the healthy finance service capacity
under the accommodative sukuk structure, and the low capital requirement for the highways with regard to operations and
maintenance (O&M). The rating is supported by the trust-like structure of ALR under which a no-dividend policy will be
incorporated with residual cash flows potentially utilised for earlier-than-projected sukuk redemption. The rating is mainly
moderated by the risk associated with traffic performance during the sukuk tenure, although the rating agency draws comfort
from the historically stable and mature traffic profile of key highways in the portfolio.
ALR’s portfolio will consist
of Shah Alam Expressway (KESAS), Lebuhraya Damansara-Puchong (LDP), The Western Kuala Lumpur Traffic Dispersal Scheme (SPRINT) and
the Stormwater Management and Road Tunnel (SMART). KESAS, LDP and SPRINT have a long operating history of over two decades and serve
a well-established commuter base along densely populated areas in the Klang Valley, and collectively account for about 97% of pro
forma consolidated revenue in 2021. Between 2015 and 2019, prior to the onset of disruptions caused by the COVID-19 pandemic, the
three highways recorded a traffic volume peak-to-trough of 11%, which reflected a fairly steady underlying traffic base. In contrast,
SMART exhibited a greater peak-to-trough volatility of 26%; however, given its low contribution of around 4% to total revenue, its
performance is unlikely to impact ALR’s financial metrics significantly.
MARC Ratings notes that the annual average daily
traffic (AADT) on the four highways combined, which had declined by 29% from the 2019 level to about 681,745 during the pandemic
years of 2020-2021, is on track to return to the pre-pandemic level following the normalisation of economic activity since 4Q2021.
The AADT in April 2022 recovered to 93% compared to that during the corresponding month in 2019. On the whole, the highway portfolio
has a 20-year traffic compound annual growth rate (CAGR) of 5.7%.
Traffic growth would also be supported by the toll
freeze at current rates under the restructured toll concessions following the acquisition of full ownership of the concession
companies of KESAS, LDP, SPRINT and SMART, from Gamuda Berhad (the majority shareholder in the concession companies) and other
shareholders. The acquisition will be partly funded by the proposed sukuk of RM5.5 billion, of which RM3.4 billion will be paid
to the shareholders of the concession companies and RM2.0 billion will be used to repay existing borrowings of the concession companies.
The acquisition and restructuring of the toll concessions will relieve the government of its heavy compensation burden.
In respect of operational risk, the rating agency views this to be low given the relatively straightforward nature of the
highways’ O&M and draws comfort that the O&M will be undertaken by the concession companies, supported by the
professional senior management team from Gamuda via the Oversight Management Services Company. Operating expenditure (opex) of
the four concession companies in the last five years has been relatively stable ranging from 17% to 23% of their respective
Cash flow analysis under the base case that assumes traffic growth of 1.7% (CAGR over the 15-year sukuk tenure)
reveals a solid average finance service coverage ratio (FSCR) of 7.5x, with a minimum of 2.4x. The strong cash flow generation would
afford ALR the flexibility to repay the sukuk early in 2033. In MARC Ratings’ sensitised case that incorporates no traffic growth and
higher opex, the average FSCR would stand at 2.7x with a minimum of 1.3x.
ALR’s liquidity position benefits from the sukuk’s protective structural features, including a complete lockup of operating cash and restrictions on dividends. While the build-up of cash
would allow for early redemption of the sukuk, the excess cash provides a strong buffer to meet exigencies in scenarios of traffic
underperformance due to unexpected events. Moreover, if ALR is unable to early redeem the sukuk in 2033, there is still up to four
years of cash generation from LDP, SPRINT and SMART highways (KESAS’ concession agreement expires in 2034) before the legal maturity
of the sukuk.