MARC Ratings has downgraded its rating on Senai-Desaru Expressway Berhad’s (SDEB) RM1.89 billion Islamic Medium-Term Notes Programme (Restructured Sukuk) to B+IS from BBIS and maintained the outlook at negative.
SDEB is the concessionaire of the 77-km tolled inter-urban Senai-Desaru Expressway (SDE) in Johor, which links the towns of Senai and Desaru with a connecting highway to Pasir Gudang.
The downgrade reflects our increased concerns on the concessionaire’s tight liquidity position and its ability to service its short-term financial obligations. As of end-2021, SDEB’s liquidity of RM37.4 million in cash and cash equivalents is adequate to cover its upcoming interest payment of RM30.3 million due on June 30, 2022. However, it faces another interest payment of RM30.8 million that is due on December 31, 2022. SDEB’s near-term liquidity pressure is a result of the highway’s weak traffic and revenue generation that was further exacerbated by the pandemic-induced travel restrictions over the past two years. In 2021, traffic volume fell to 8.1 million transactions (2020: 9.3 million) while revenue fell to RM57.7 million (2020: RM65.6 million). The weak credit metrics resulted in a finance service cover ratio (FSCR) of 0.54x as at end-2021, below the covenanted 1.25x.
We understand that SDEB is currently in discussions to obtain a waiver on the FSCR covenant for FY2021 and refinance the sukuk, which is expected to be finalised before the end of this year. However, we believe there is an execution risk pertaining to the restructuring as the refinancing proposal has yet to be completed and the timing of its conclusion is uncertain. Failure to swiftly implement the restructuring or other measures to shore up liquidity to adequately address the financial obligations due in December 2022 will lead to a default situation. If the sukuk restructuring were to take place before December 2022, we will reassess SDEB’s new debt profile, taking into account the concessionaire’s capital structure, risk profile and prospects post-restructuring.