MARC affirms AA-IS, A- ratings of Kesturi’s senior sukuk, junior bond

TheEdge Fri, Apr 07, 2023 04:09pm - 5 months View Original

KUALA LUMPUR (April 7): MARC Ratings Bhd has affirmed the AA-IS and A- ratings of Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd’s (Kesturi) senior sukuk (sukuk musharakah) worth RM2.3 billion, and redeemable secured junior bonds worth RM180 million.

In a statement on Friday (April 7), the local rating agency said the outlook on both ratings is stable.

“Kesturi benefits from its highway routes linking matured and densely populated areas, such as Damansara, Mont Kiara, Sri Hartamas, Ulu Kelang and Setiawangsa, with the city centre. 

“The ratings incorporate the highways’ easy accessibility and wide connectivity to other major highways in the Klang Valley, as well as their stable commuter traffic base,” it said.

Kesturi, a wholly-owned subsidiary of Ekovest Bhd, is the toll concessionaire of the Duta Ulu-Kelang Expressway (DUKE) and Setiawangsa-Pantai Expressway in the Klang Valley.

MARC highlighted that traffic fell sharply in 2020/2021 amid the Covid-19 pandemic, but it has surpassed the pre-pandemic level by nearly 14% in the eight months of 2023 (8MFY23), from July 2022 to Feb 2023.

“The 14-year-old DUKE 1 has a mature traffic profile with low but steady traffic growth averaging 1.35% per annum over the past five years, excluding periods impacted by the pandemic.

“DUKE 2 is relatively young (opened to public in October 2017) and its traffic has been growing steadily with an expected average growth of 3% per annum from 2024 to 2028, and 1% per annum from 2029 to 2034,” it said.

MARC projected that the toll concessionaire's coverage to remain strong, averaging 2.8 times under flat traffic and toll tariff assumptions, as well as a one-year delay in government compensation.

Meanwhile, Kesturi’s total borrowings saw a slight reduction to RM2.1 billion as at end-2022 due to RM100 million repayment of sukuk, and are expected to reduce progressively in line with scheduled repayments.

Its debt-to-equity (DE) ratio stood at 22.3 times as at end-June 2022, versus around 23.6 times as at end-June 2021. 

“While this has trended down to 14.7 times as at end-December 2022 on improving profitability and lower borrowings, we still view the current leverage level as high,” it said.

However, the rating agency expects further improvement in the DE ratio as traffic levels are likely to continue on a positive trajectory.

Liquidity is deemed adequate, with RM92.8 million in cash and cash equivalents as of end-2022 and projected operating cash flow of around RM295 million in 2023. 

"This is sufficient to cover the senior sukuk’s upcoming profit payments of RM95.5 million and principal repayments of RM140.0 million due on Dec 2, 2023," it noted.

Additionally, Kesturi also retains financial flexibility in the form of the long remaining life of its concession ending August 2059, with an option to extend for another ten years, which could afford the company an avenue for refinancing, if required, said MARC.

At 3.22pm, Ekovest was 6.41% or 2.5 sen higher at 42 sen, giving it a market capitalisation of RM1.1 billion.

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