20 January 2016

RAM Ratings has assigned a AAA(bg)/Stable rating to EKVE Sdn Bhd's (EKVESB or the Company) proposed guaranteed Sukuk Murabahah facility of up to RM1,000 million (Proposed Sukuk). The rating reflects the irrevocable and unconditional guarantees from AAA-rated Maybank Islamic Berhad and Bank Pembangunan Malaysia Berhad, each committing up to RM500 million in nominal value. The guarantees enhance the Proposed Sukuk's ratings beyond the Company's stand-alone credit strength. EKVESB is the concessionaire of the East Klang Valley Expressway (EKVE or the Expressway), a 36.16-km closed-toll expressway which will start from Sungai Long and terminate at Ukay Perdana, under a 50-year concession agreement with the Government of Malaysia (GoM).

The construction of the Expressway, which is expected to take 4 years to complete at a cost of RM1.55 billion, will be undertaken by Ahmad Zaki Sdn Bhd (Ahmad Zaki or the Contractor). Although Ahmad Zaki has a track record in infrastructure projects, the complexity of the EKVE's construction poses a different set of challenges to the Contractor. Nonetheless, geotechnical engineering solutions proposed by Ahmad Zaki are expected to mitigate some construction-related risks, alongside cost and timing provisions made for the length of the construction period. Additionally, all land required for the Project has also been fully acquired as at end-November 2015.

Funding for the Expressway is dependent on proceeds from the Proposed Sukuk, a Government Support Loan of RM635 million and an equity injection of RM350 million from Ahmad Zaki Resources Berhad (AZRB), the Company's sole shareholder. AZRB has also provided an undertaking to cover any potential cost overruns (including higher-than-stipulated land-acquisition costs), to fulfil requirements of the Finance Service Reserve Account - if the minimum balance is not met - during both the construction and operating periods and to assist EKVESB in meeting its financial obligations under the Proposed Sukuk. In the absence of financial support from its shareholder, the projections indicate that EKVESB may need to refinance its financial obligations by 2019 after factoring in RAM's sensitivities on construction- and traffic-related risks, (or by 2021 in the absence of cost overruns and delays). On this note, the long remaining tenure of the concession provides room for a refinancing exercise. As with most concession-related projects, the Company is exposed to regulatory and single-project risks.

Motorists' aversion to paying toll, high initial toll rates and the construction of the Klang Valley Mass Rapid Transit and the Sungai Besi-Ulu Kelang Expressway (parallelly aligned) may ease EKVE's attractiveness over the longer term. That said, EKVE will complete the Kuala Lumpur Outer Ring Road road network and provide better mobility for north-south traffic in eastern parts of the Klang Valley, i.e., between Gombak and Kajang, especially beneficial during peak hours in offering a shorter and faster option to the congested Middle Ring Road 2.

-Ends-

Media contacts
Adeline Poh
(603) 7628 1021
adeline@ram.com.my

Davinder Kaur Gill
(603) 7628 1118
davinder@ram.com.my

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© Press Release 2016