RAM Ratings has reaffirmed the AA2 ratings of Penang Bridge Sdn Bhd's (PBSB or the Company) RM785 million Al-Bai' Bithaman Ajil Facility (2000/2013) (BaIDS) and RM695 million Redeemable Zero-Coupon Serial Sukuk Istisna' (2006/2019) (Sukuk) - collectively known as "the Facilities"; the long-term ratings have a stable outlook. PBSB, a single-purpose company, is the concessionaire of the 13.5-km Penang Bridge (the Bridge).

Given the Bridge's status as the only road link between the mainland and the island of Penang, it has been consistently posting traffic-volume growth since its opening in 1985. Despite the challenging economic environment in 2009, traffic flow on the Bridge rose 2.5% year-on-year (y-o-y) to 23.08 million passenger-car-units (PCU). The growth momentum continued into 2010, as evidenced by the Bridge's 11.7% y-o-y traffic-volume increase for the first 7 months of the year. We believe this is due to the low base in early 2009 and more upbeat economic sentiment; Malaysia's gross domestic product (GDP) expanded 8.9% y-o-y in 2Q 2010.

Based on the management's traffic projections, the opening of the Second Penang Bridge (Second Bridge) - expected by 4Q 2013 - is expected to reduce the Bridge's traffic volume by about 16%. However, it is difficult to gauge the exact impact at this juncture, as commuters' decision to use the competing route will depend on factors like traffic-dispersal systems, travelling distance, convenience and toll rates. Nonetheless, RAM Ratings' cashflow analysis assumes a 20% reduction in the Bridge's traffic volume upon the completion of the Second Bridge, followed by a 1% growth thereafter. We highlight that a greater-than-expected traffic leakage will strain the Company's cashflow.

Based on RAM Ratings' cashflow analysis, PBSB is expected to register respective minimum and average finance service cover ratios (FSCRs) (with all cash balances, post-distribution) of 2.26 times and 3.02 times throughout the tenures of the Facilities (excluding the final year of the Sukuk repayment), underpinned by an average pre-financing cashflow of about RM127 million per annum. Notably, the Company's FSCRs (without cash balances) will dip below 1 time from 2015 onwards due to the Sukuk's increasing repayments. During that period, PBSB will have to partially rely on its cash reserves to meet its debt obligations. We therefore remain cautious about the Company's future distributions to its shareholder, as sustained distributions - while still adhering to the distribution covenant of 2.5 times - may weaken its future FSCRs beyond its existing profile. We also note that the Company has not declared or paid any dividend since fiscal 2001.

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Media contact
Adelia Abdul Rahim
(603) 7628 1055
adelia@ram.com.my

© Press Release 2010