Update on MRCB Southern Link's Senior and Junior Sukuk ratings
RAM Ratings has maintained the respective AA3 and A2 ratings of MRCB Southern Link Berhad's ("MRCB SL" or "the Company") RM845 million Secured Senior Sukuk (2008/2025) ("Senior Sukuk") and RM199 million Junior Sukuk (2008/2027) ("Junior Sukuk"). Meanwhile, the ratings of the Senior and Junior Sukuk continue to be on negative Rating Watch. On 9 March 2012, the Prime Minister announced that motorists who do not use the Eastern Dispersal Link Expressway ("EDL") will not be required to pay toll charges. The announcement differs from the terms of the concession agreement, under which all motorists (with the exception of motorcycles) that use the JB-Singapore Causeway must pay the EDL toll charges.
MRCB SL is a wholly owned subsidiary and funding conduit of MRCB Lingkaran Selatan Sdn Bhd - the concessionaire for the 8.1-km EDL in Johor Bahru ("JB"). The proceeds from the Sukuk had been used to fund the construction of the EDL, which was fully completed on 15 January 2012 and is currently awaiting the issuance of a certificate of fitness.
Pending finalisation of some technical issues, the Government is expected to make a further announcement by end-March 2012. RAM Ratings will closely monitor the relevant developments; any changes in the terms of the concession will be reassessed for credit implications as they are made available.
Meanwhile, the negative Rating Watch reflects the uncertainties pertaining to the EDL's ability to commence tolling operations, its eventual tolling mechanism and traffic volume. These factors could have a negative bearing on the Company's cashflow profile and debt-servicing ability throughout the tenure of the sukuk
. We highlight that, should MRCB SL be unable to begin tolling operations and not receive timely and adequate cash compensation, it is likely to face a shortfall in its cashflow to meet its debt obligations in December 2012. Under these circumstances, there could be a multi-notch downgrade for the Senior and Junior Sukuk
RAM Ratings' Rating Watch highlights a possible change in an issuer's sukuk rating. It focuses on identifiable events such as mergers, acquisitions, regulatory changes and operational developments that place a rated sukuk under special surveillance by RAM Ratings. In a broader sense, it covers any event that may result in changes in the risk factors relating to the repayment of principal and interest.
Issues will appear on RAM Ratings' Rating Watch when some of the above events are expected to or have occurred. Appearance on RAM Ratings' Rating Watch, however, does not inevitably mean that the rating will be changed. It only means that a rating is under evaluation by RAM Ratings and a final affirmation is expected to be announced. A "positive" outlook indicates that a rating may be raised while a "negative" outlook indicates that a rating may be lowered. A "developing" outlook refers to those unusual situations in which future events are so unclear that the rating may potentially be raised or lowered.
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