MARC Ratings has affirmed its rating of AA-_IS on Grand Sepadu (NK) Sdn Bhd’s RM210.0 million Sukuk Murabahah. Concurrently, the rating outlook has been revised to positive from stable.

The outlook revision considers Grand Sepadu’s steadily improving leverage and coverage ratios, supported by a disciplined approach to dividend distribution. Its overall debt has continued to decline under the amortising structure to RM60 million as at end-April 2024. Debt-to-equity ratio was lower at 0.5x while cash flow coverage on interest improved to a healthy 11.9x as at end-2023 (2022: 0.8x; 6.2x). The rating affirmation reflects Grand Sepadu’s stable financial performance, supported by resilient commercial traffic on its mature New North Klang Straits Bypass (NNKSB).

Grand Sepadu operates the 17.5-km NNKSB, which includes four toll plazas, namely Bukit Raja, Kapar, Kapar Westbound and Kapar Eastbound, under a concession expiring in December 2032. Following a strong recovery from the pandemic, traffic volume has returned to its normalised and mature growth trajectory. Average daily traffic was up 3% y-o-y to 88,505 vehicles in 2023 and was stable y-o-y at 88,919 vehicles in 1QFY2024. Tolling revenue saw a modest increase to RM52.2 million in 2023, from 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.

Grand Sepadu is projected to generate positive cash flow from operations of between RM63 million and RM74 million over the next three years, supporting liquidity and providing capacity for debt repayment. MARC Ratings’ sensitised scenarios project pre-distribution finance service cover ratio to be above the covenanted 1.75x between 2024 and 2026. The rating would be upgraded over the near term if Grand Sepadu continues to exercise discipline in its dividend distribution and manage its cash retention to ensure liquidity and leverage metrics are well within the expected range of the rating band.