RAM Ratings has assigned AAA(bg/fg)/Stable ratings to the Proposed Guaranteed RM1 billion Sukuk Murabahah Programme to be issued by West Coast Expressway Sdn Bhd (West Coast or the Company). The ratings reflect irrevocable and unconditional Kafalah from AAA-rated Bank Pembangunan Malaysia Berhad and Danajamin Nasional Berhad, which enhance the sukuk's ratings beyond West Coast's stand-alone credit strength. The proposed sukuk, a syndicated term-loan facility, a government support loan (GSL) and shareholders' equity will fund the West Coast Expressway (WCE or the Expressway).
The Expressway, a 316-km highway from Banting, Selangor, to Changkat Jering in Taiping, Perak, will be the second longest inter-state tolled expressway after the North-South Expressway and is budgeted for completion within 5 years at a cost of RM5 billion. Of the total length of the WCE, 233 km comes under the purview of West Coast under the Concession Agreement, of which the engineering, procurement and construction contract of the initial 193-km sections has been awarded to a consortium comprising IJM Construction Sdn Bhd and Kumpulan Europlus Berhad (KEuro) while the construction of a 40-km stretch is deferred. Meanwhile, the remaining 83 km consists of non-tolled existing roads to be upgraded by the Government of Malaysia, concurrently with the construction of other sections.
"While IJM Construction has a track record in building toll roads, the concurrent construction of a 193-km stretch will be its largest toll-road project to date, which is a new feat to be achieved. Soft-soil conditions along the coastal stretches, an elevated section in Selangor, and large land acquisitions will be some of its key construction challenges," highlights Davinder Kaur Gill, Co-Head of RAM's Infrastructure and Utilities Ratings. "That said, in mitigating such challenges, detailed soil investigations have been conducted since 2007, while some cost and timing provisions have been made," she adds. For land acquisition, the government will bear costs of up to RM980 million while any excess will be borne by West Coast.
The Company's shareholders (KEuro and Road Builder (M) Holdings Bhd) have irrevocably and unconditionally undertaken to provide financial support to ensure the completion of the WCE, and a cash-deficiency undertaking for up to RM400 million to meet shortfalls in financial obligations. Project costs and financing sources are well matched, leaving no room for construction delays or cost overruns. Should the latter events take place, the WCE's completion will be dependent on shareholder support.
Upon completion, the WCE will be a shorter and quicker option for north-south commuters along the west coast. Initial traffic flow is expected to stem from daily commuters in Shah Alam and Klang, who currently use toll-free roads. The WCE will also provide improved connectivity by intersecting expressways such as the Shah Alam Expressway, Federal Highway Route II, North Klang Valley Expressway, South Klang Valley Expressway and the New North Klang Straits Bypass. Over the longer term, the WCE is anticipated to facilitate a socio-economic development agenda in sections of northern Selangor and northern Perak which remain fairly undeveloped.
Based on RAM's sensitised cashflow analysis, the Company is not expected to generate sufficient pre-financing cashflow to match its debt repayment obligations, necessitating the injection of monetary support from its shareholders in the early years of the proposed sukuk's tenure. West Coast expects to refinance a lumpy repayment of the syndicated term-loan facility by FY Mar 2028. On this note, the long remaining life of the concession (at least 36 years) provides room for such an exercise, and West Coast's cashflow over the concession period is expected to sufficiently support its debt repayments. In addition, the GSL has been structured based on repayment terms that do not constrain West Coast's financials (i.e. low GSL repayments during the proposed sukuk's tenure).
As with most concession-related projects, the Company is exposed to regulatory and single-project risks.
Media contact
Chin Wynn
(603) 7628 1170
chinwynn@ram.com.my
© Press Release 2015
