MARC has placed Projek Lebuhraya Usahasama Berhad’s (PLUS) AAAIS/Stable rating on its RM23.35 billion Sukuk Musharakah Programme on MARCWatch Developing.
The rating action has been triggered by the recent government announcement on PLUS with the aim to reduce the toll burden on the Rakyat and relieve the government of compensation pressures. Achieving these objectives, however, will necessitate modifications to PLUS’ concession agreements including an extension to the concession period to meet cash flow requirements.
PLUS is the toll concessionaire of five highways in Malaysia comprising North-South Expressway (NSE), New Klang Valley Expressway, North-South Expressway Central Link, Malaysia-Singapore Second Link, Butterworth-Kulim Expressway and the Penang Bridge. Of these, the 772-km NSE remains its key highway in terms of revenue contribution, generating around two-thirds of total toll revenue of RM2.9 billion for 9M2019.
We note that PLUS’ shareholding structure will remain unchanged with Khazanah Nasional Berhad (via UEM Group Berhad) and the Employees’ Provident Fund maintaining 51% and 49% interest respectively. The concessionaire will also be given a 20-year extension until 2058 to compensate for an 18% toll reduction and a freeze on toll hikes, as announced. The 18% toll cut for private vehicle users alone could push the concessionaire’s annual revenue lower by about RM0.5 billion on average, but our assessment indicates no pressure on PLUS’ debt-servicing ability in the immediate term (assuming all else remains equal). However, specifics of the application of the toll discount and longer-term implications on PLUS’ credit metrics are matters expected to be the subject of further discussions with the government over the next 3 to 6 months.
MARC understands that negotiations have already commenced with the government to reach an optimum and balanced outcome for all stakeholders. MARC wishes to highlight that the amount outstanding under its rated Sukuk Musharakah programme currently stands at RM18.4 billion, following the recent principal repayment of RM500 million on January 10, 2020.
Meanwhile, the rating agency continues to look at the interdependence between default events for the rated sukuk and the RM11.0 billion government-guaranteed sukuk that matures after the rated programme as credit positive. MARC had rated PLUS’ sukuk at AAAIS, incorporating a two-notch rating uplift from PLUS’ standalone rating that reflected our assessment of a very high likelihood of government support to the company.
MARC’s developing placement, therefore, reflects the ongoing negotiations with the government at this juncture and we will reassess and take appropriate rating action as necessary when there is more clarity on the outcome of the recent changes.