MARC has affirmed A+ID and AA-(bg) ratings on Sistem Penyuraian Trafik KL Barat Sdn Bhd's (SPRINT) RM510 million Al Bai Bithaman Ajil Islamic Debt Securities (BaIDS) and RM365 million Bank Guaranteed Serial Fixed Rate Bonds (BG bonds) respectively. The outlook on the ratings is stable. SPRINT is the owner and concessionaire of three interlinked highways namely the Damansara Link, Kerinchi Link and Penchala Link. The highways have a total length of 26.5km and were designed to ease traffic congestion in western Kuala Lumpur.
The AA- rating on the BG bonds reflects the lowest financial institution rating among the guarantor banks comprising Public Bank Berhad, AmInvestment Bank Berhad and RHB Bank Berhad, in line with MARC's weakest link approach. MARC maintains non-solicited ratings on the three banks on the basis of information in the public domain. The A+ rating on the BaIDS is underpinned by the adequacy of SPRINT's actual and projected cash flow from its relatively matured highways to meet the debt service obligations. Constraining the rating on the BaIDS are SPRINT's significant reliance on timely government toll compensations in lieu of toll hikes and aggressive debt repayment schedule from 2017 onwards.
Traffic growth on SPRINT's tolled roads has benefitted from toll hike deferments since the commencement of commercial operations. In the first ten months of 2014 (10M2014), the average daily traffic (ADT) on the Kerinchi Link and the Penchala Link registered 5.2% and 11.8% increases to 90,522 vehicles/day and 77,780 vehicles/day respectively. However, the ADT on the Damansara Link decreased by 6.6% to 55,153 vehicles/day mainly attributed to traffic congestion arising from the Klang Valley Mass Rapid Transit (KVMRT) works. MARC remains concerned that Penchala Link has continued to underperform by 3.3% from its projected ADT in 10M2014 (10M2013: -5.0%). The Penchala Link is expected to increase its contribution to overall earnings given the comparatively higher toll rates on the link, and therefore traffic underperformance would weigh on SPRINT's cash flow generation.
SPRINT's revenue rose marginally to RM179.9 million for the financial year ended March 31, 2014 (FY2014), in line with the year-on-year increase in overall traffic volume (FY2013: RM173.1 million). However, operating profit was flat at RM109.1 million due to the higher amortisation of highway development expenditure relating to the Sri Hartamas interchange which was completed in FY2014 (FY2013: RM109.5 million). Coupled with its high finance costs, SPRINT continued to register post-tax losses of RM15.9 million (FY2013: post-tax losses of RM13.4 million); consequently, accumulated losses widened to RM442.4 million in FY2014 from RM426.3 million in FY2013.
Notwithstanding the weaker profitability performance, SPRINT recorded a higher cash flow from operations (CFO) of RM152.0 million in FY2014 (FY2013: RM138.0 million). MARC observes that SPRINT's ability to maintain its liquidity buffer is increasingly dependent on receiving cash compensations from the government on a timely basis. Any material delay in the receipt of government compensations which accounted for about 40% of the company's CFO in FY2014 will negatively impact SPRINT's cash flow metrics. However, the company's cash and bank balances of RM170.2 million as at September 30, 2014 and the availability of undertaking from the ultimate shareholders, Lingkaran Trans Kota Holdings Bhd, Gamuda Bhd and Kumpulan Perangsang Selangor Bhd, to inject funds of up to RM25.0 million via loan stocks, offer some protection against liquidity risk and moderate traffic underperformance in the near to immediate term.
SPRINT has maintained compliance with the debt service coverage ratio (DSCR) financial covenant of 1.50 times; its DSCR stood at 1.98 times against a forecast DSCR of 1.90 times for FY2014. Assuming the timely receipt of government cash compensations, the projected DSCR under the latest cash flow projection remains adequate even after incorporating the impending Goods and Services Tax. MARC's sensitivity analysis demonstrates that SPRINT's cash flow projections can withstand traffic underperformance of up to 18% before its minimum DSCR is breached. Nonetheless, SPRINT's projected traffic growth could come under pressure when the KVMRT is completed in 2017. SPRINT's debt service obligations are expected to range between RM172.4 million and RM256.6 million for the FY2017 and FY2021 periods corresponding with the amortisation of the BaIDS. Nonetheless, SPRINT's long concession period until 2034 should provide the company some flexibility to refinance its debt obligations.
The stable outlook on the BaIDS assumes SPRINT will maintain its financial metrics on the basis of timely receipts of toll hike compensations and traffic performance that is within expectations. In respect of the BG bonds, any changes to the rating and outlook of the BG bonds would be largely driven by changes in the credit quality of the guarantor banks.
Contacts: Ng Chun Kean, +603-2082 2230/chunkean@marc.com.my; David Lee, +603-2082 2255/ david@marc.com.my.
© Press Release 2015
