Tuesday, October 12, 2010

RAM Ratings maintains AA3 rating of Kesas's RM800m Islamic debt notes

KUALA LUMPUR: RAM Ratings has reaffirmed the AA3 rating of Kesas Sdn Bhd's RM800 million Al-Bai Bithaman Ajil Islamic debt securities (2002/2014) (BaIDS); the long-term rating has a stable outlook.

Below is the statement by RAM Rating Services Bhd

Kesas holds the concession for the CONSTRUCTION [], maintenance and toll collection of the 35-km Shah Alam Expressway (SAE or the Expressway).

The rating remains supported by the SAE's commendable traffic-volume growth; in FY Mar 2010, the Expressway's average daily traffic (ADT) rose 6.9% year-on-year to 243,310 vehicles, surpassing its pre-toll-rate-hike levels in 2006.

The strong growth was primarily due to the commencement of an arterial highway that intersects the SAE at the Kewajipan interchange (that is the Subang-Kelana Jaya link), on top of the organic traffic-volume growth contributed by developments along the Expressway.

Additionally, the SAE's daily traffic count was boosted to 252,577 vehicles in the first 3 months of FY Mar 2011, following the opening of Lebuhraya Kemuning-Shah Alam in May 2010.

While Kesas' minimum finance service coverage ratio (FSCR) with cash (post-distribution) is expected to only come up to 1.64 times, we highlight that this is due to the Company's lumpy financial obligations of RM305 million in FY Mar 2014.

Excluding this anomaly, its minimum and average FSCRs with cash balances (post-distribution) are projected to clock in at 2.13 and 2.29 times, respectively.

Nevertheless, given Kesas' lumpy debt repayment in FY Mar 2014, we caution that any excessive distributions to shareholders would strain the Company's cash buffer, which in turn could exert downward pressure on the rating of the BaIDS.

In the meantime, the SAE remains vulnerable to competition from other routes, such as the Federal Highway Route 2 and the New Pantai Expressway; the latter's toll rates have been consistently lower than those of the SAE.

However, this is mitigated by the commercial and residential developments along the Expressway, which could promote its future traffic growth. As with all toll concessionaires, the rating is moderated by regulatory and single-project risks.


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