RAM Ratings has assigned a rating of AA2 to Projek Smart Holdings Sdn Bhd's (Smart Holdings or the Company) proposed IMTN Facility of up to RM330 million in nominal value (Proposed Sukuk). Smart Holdings is the sole shareholder of Syarikat Mengurus Air Banjir dan Terowong Sdn Bhd (SMART), which in turn is the concessionaire for the Stormwater Management and Road Tunnel Project (Smart Tunnel) comprising the Stormwater Channel and Motorway Works, under a construction and concession agreement spanning 40 years from 1 January 2003.
We have assessed the Proposed Sukuk from a project-finance perspective, based on the strong single-asset nature of SMART and the limitation of its business activities to that of the Smart Tunnel coupled with stringent transaction covenants to which both Smart Holdings and SMART are subject.
The Smart motorway offers unparalleled connectivity for travellers using the Kuala Lumpur-Seremban Highway, Federal Highway and East-West Link to enter the city centre, heading towards Jalan Tun Razak and Jalan Sultan Ismail and vice versa. The motorway registered average daily traffic (ADT) of 33,419 vehicles in 2014, with traffic having increased at a CAGR of 2.7% over the last 5 years.
However, we have assumed a conservative 2.2% average annual traffic growth during years when there are no toll-rate hikes despite the development plans underway along the Smart Tunnel - namely the Tun Razak Exchange and Bandar Malaysia. This is because ADT growth over the last 3 years has continued to be constrained by the congestion at Jalan Tun Razak and Jalan Sultan Ismail, particularly during the early peak hours. Our analysis also incorporates certain years of decline in traffic owing to the price elasticity of demand during periods of toll rate hikes.
Our analysis integrates the unique dual-function feature of the Smart Tunnel, i.e., both as a motorway and to channel floodwater - the motorway may be closed to traffic for up to 4 days during extremely heavy downpours. As each motorway closure leads to revenue loss, our analysis incorporates annual closures relating to downpours, in addition to elevated operation and maintenance expenses owing to the cleaning, repair and maintenance of the motorway after such closures.
Taking into account the abovesaid factors, Smart Holdings is envisaged to register strong debt-servicing indicators, with minimum and average finance service coverage ratios (with cash balances, post distribution, calculated on payment dates) of 2.45 times and 3.07 times, respectively, over the tenure of the Proposed Sukuk. Our stressed financial analysis assumes minimal distributions to Smart Holdings shareholders while prioritising adherence to financial covenants on a forward-looking basis.
Typical of concession-related projects, the Company is exposed to regulatory and single-project risks.
Media contacts
Adeline Poh
(603) 7628 1021
adeline@ram.com.my
Davinder Kaur Gill
(603) 7628 1118
davinder@ram.com.my
© Press Release 2015
