MARC Ratings has assigned a “Silver” Sustainability Sukuk Assessment to Amanat Lebuhraya Rakyat Berhad’s (ALR) Sustainability Sukuk Framework (the Framework). MARC also opines that the Framework is aligned with the core components of the Securities Commission Malaysia’s (SC) Sustainable and Responsible Investment (SRI) Sukuk Framework.
A company managed by a board of directors, ALR was established with the specific purpose of acquiring four highway toll concessionaires namely, Sistem Penyuraian Trafik KL Barat Sdn Bhd (SPRINT SB), Syarikat Mengurus Air Banjir & Terowong Sdn Bhd (SMART SB), Lingkaran Trans Kota Holdings Sdn Bhd (LITRAK SB) and KESAS Sdn Bhd (KESAS SB) pursuant to a toll restructuring proposal submitted to the Ministry of Works. The restructuring of the tolled highway concessions will mitigate the fiscal impact of toll freeze compensation obligations and allow all four highways to maintain existing toll rates. The shareholders do not provide risk capital for the business and any surplus generated by ALR will be applied towards the full redemption of the Sukuk which will lead to shortening of the concessions.
The net proceeds of the SRI Sukuk are intended to be predominantly used to finance the acquisition of the said concessionaires and the redemption/settlement of their existing debt. Managed under Build-Operate-Transfer (BOT) concessions, the four controlled-access highways measuring 110.7 km in total are the Western Kuala Lumpur Dispersal Link (SPRINT), the Stormwater Management and Road Tunnel (SMART), the Damansara-Puchong Highway (LDP) and the Shah Alam Expressway (KESAS). The highways are mature road networks within Malaysia’s economically developed Klang Valley.
Based on the nature of the expected social impact of the acquisitions of SPRINT SB, SMART SB, LITRAK SB and KESAS SB, ALR has defined its single largest acquisition funding Use of Proceeds category as “Socioeconomic Advancement and Empowerment”. This Use of Proceeds category seeks to achieve positive social outcomes especially, but not exclusively, for the B40 and M40 highway users, as well as for the general population through fiscal savings on the part of the government. MARC Ratings views positively ALR’s efforts to quantify this social additionality which consists of direct welfare gains among the highway users from toll rate savings and an expected shortening of the revised end dates of the concessions as well as indirect public welfare gains from the release of fiscal resources for potentially impactful public spending. ALR has estimated the monetary values of the expected net welfare gain to highway users and indirect public welfare gains, at RM2.67 billion and RM3.52 billion respectively under an annual highway traffic growth scenario of 1.7%. The Framework also quantifies the to-date flood mitigation benefit of SMART’s stormwater management function at RM1.4 billion based on estimated avoided damages.
The Framework also outlines future proposed projects that align with the main issues of the tolled road sector in terms of environmental and social responsibility. These projects will be an important part of ALR’s sustainability strategy which includes reducing emissions and climate change exposures.
In arriving at the Framework’s Silver assessment, MARC Ratings assessed the impact of the Use of Proceeds to be significant, mostly on the basis of the social additionality to be provided in the form of improved equity in transport and fiscal savings, as well as qualitative benefits associated with effective, safe and reliable highways and SMART’s stormwater tunnel’s flood mitigation capacity.
The Framework aligns ALR’s post-issuance tracking and reporting on use of proceeds with SC’s SRI Sukuk framework. It provides for annual reporting of the projects to which the Sukuk proceeds have been allocated, the balance of unallocated proceeds and where such unutilised amount is placed or invested pending utilisation, as well as project impact indicators.
Finally, MARC Ratings considers the environmental and social risks associated with the Use of Proceeds categories to be well managed in light of the highways’ long operating, maintenance and safety track record.
The full Sustainability Sukuk Assessment can be accessed here.