MRCB Southern Link sukuk rating may be cut

PETALING JAYA: RAM Ratings’ ratings on MRCB Southern Link Bhd’s (MSLB) RM845 million senior sukuk could be downgraded in the coming months should the indicative buyout offers for the 8.2km Eastern Dispersal Link (EDL) Expressway not materialise and/or make headway in refinancing plans.
“Given the persistent mismatch between the company’s cash generating ability and annual debt repayments (owing to weak traffic volumes since commencement of tolling at the EDL), the rating of the sukuk could be downgraded in the coming months should the indicative buyout offers not materialise and/or the company not make any headway in its refinancing plans,” said RAM in a statement yesterday.
It reaffirmed MSLB’s sukuk at BB3 with a negative outlook.
“While we remain concerned about the company’s strained liquidity position, the Bursa Malaysia announcement made on Oct 14, 2016 could pave the way for a longer term solution,” RAM said.
Last week MRCB announced that it had received two indicative offers from PLUS Malaysia Bhd and an undisclosed client represented by ZJ Advisory Sdn Bhd.
The company had sought lenders approval to defer a principal payment under its term loan facility from July 2016 to November 2016, due to insufficient funds.
“Given the company’s persistent tight liquidity position, we do not discount further deferral of principal payments under the term loan. Despite this, we have been informed that the profit payments under the senior sukuk will continue to be paid on its due date.”
MSLB’s cash balances stood at RM30.03 million as at end-September 2016. Coupled with the operating cashflow over the next few months, the company should have sufficient internal funds to meet its dues under the term loan in November 2016.
RAM’s analysis assumes the drawdown of the company’s RM59.35 million finance service reserve account bank guarantee to help allay the cash shortfalls in honouring its financial obligations till January 2018 (over the next 15 months), before again facing a cashflow shortfall in repaying its term loan.
“Any default on the term loan will result in a cross-default on the senior sukuk as they rank pari passu in terms of cashflow and security,” it added.
The concessionaire’s projected toll revenue has been undermined by lower-than-expected traffic volumes since the commencement of tolling in August 2014.
Average daily traffic (ADT) on EDL came in marginally below expectations at 43,412 vehicles in 2015 (RAM’s projection: 43,723 vehicles).
ADT declined a further 1.6% to 42,716 vehicles in the first 9 months of 2016 and is anticipated to decrease by 1.8% in 2016 in view of the volatility of traffic.
“MSLB is a funding conduit for the EDL. The company’s financial commitments will be supported by back-to-back payments from MSLB. Recognising the strong credit link between the two entities, we view them in aggregate from a credit standpoint,” said RAM.