Proposal to abolish tolls will impact RM53b of toll-road bonds, sukuk

PETALING JAYA: The new administration's proposed intention to abolish the imposition of highway tolls will impact RM53 billion worth of bonds and sukuk issued by toll road concessionaires, said RAM Ratings.
“While the government has indicated that it will uphold the terms of the concessions in implementing the proposal, the terms of a settlement in the event of expropriation differ for each concession agreement,” it said in a statement today.
Pending further details, RAM expects the government to balance its plan against any implications to the bond market.
According to RAM, the toll-road sector is one of the earliest and largest sectors in Malaysia to have tapped the debt capital markets.

As at May 15, 2018, the sector comprised 23 issuers, with RM52.83 billion of bonds and sukuk (excluding loan stocks) outstanding, of which RM39.79 billion are rated.
These bonds and sukuk are largely held by local institutional investors and government-linked pension funds.
RAM’s co-head of infrastructure and utilities ratings Chong Van Nee said cashflow matching is a key rating driver for toll-road concessionaires.
“As concession terms are not uniform across the sector, the issue rating for each toll road would have to be assessed on a case-by-case basis, with an emphasis on the timing of and the eventual payment amount from the government, weighed against the financial obligations of the concessionaires,” she said.
In the interim, if tariffs are not implemented as per the toll-rate schedule in the concession agreements, the government is obligated to compensate concessionaires, which has happened in the past.
The previous government allocated a sum of RM448 million in Budget 2018 for compensation to toll concessionaires.