EDL sukuk rating may be downgraded, says RAM

KUALA LUMPUR: RAM Ratings said ratings on a sukuk to fund the Eastern Dispersal Link (EDL) may be downgraded with prolonged negotiations between MRCB Lingkaran Selatan Sdn Bhd and the government, as the cash pile of the funding conduit MRCB Southern Link Sdn Bhd dwindles.
MRCB Lingkaran Selatan, the toll concessionaire holder, is still in discussions with the government on the termination of its concession agreement and the final settlement amount.
RAM Ratings has a BB3 rating on MRCB Southern Link’s RM845 million senior sukuk, which is now on its Rating Watch and a negative outlook.
As at Dec 31, 2017, MRCB Southern Link’s cash balances stood at RM17.45 million. Given the absence of toll revenue from Jan 1, 2018, RAM Ratings said the company’s cash pile will not be sufficient to settle the ensuing principal and profit payments on its senior sukuk.
RAM’s rating action follows the abolishment of toll collection at the 8.62-km EDL effective Jan 1, 2018, and the takeover of the expressway by the government.
MRCB Southern Link’s financial commitments will be supported by back-to-back payments from MRCB Lingkaran Selatan Sdn Bhd the toll concessionaire holder.
“We expect to resolve the Rating Watch once details on the proposed settlement and, by extension, repayment of the company’s sukuk obligations are made available to RAM,” RAM Ratings said in a statement today.
RAM estimates the drawdown of the company’s finance service reserve account bank-guarantee facility to alleviate cash shortfalls in honouring its financial obligations up to June 2018, barring any unexpected expenditure.
“Should negotiations on a final settlement be prolonged and without shareholder support or any other external liquidity support thereafter, the rating of the senior sukuk is expected to be downgraded in anticipation of a potential default by the end of this year.”