GEORGE TOWN (July 22): West Coast Expressway Sdn Bhd (WCESB) is expected to issue a guaranteed RM1 billion sukuk murabahah programme to fund the RM5 billion West Coast Expressway from Banting, Selangor to Changkat Jering, Perak.

The proposed sukuk, a syndicated term-loan facility, a government support loan (GSL) and shareholders’ equity, has been assigned AAA(bg/fg) or stable ratings by RAM Ratings Services Bhd.

“The ratings reflect irrevocable and unconditional Kafalah from AAA-rated Bank Pembangunan Malaysia Berhad and Danajamin Nasional Berhad, which enhance the sukuk’s ratings beyond WCESB’s stand-alone credit strength,” it said.

The 316km expressway, which would be the second longest inter-state tolled road after the North-South Expressway, is budgeted for completion within five years.

RAM said 233km of the expressway would come under the WCESB’s purview, under a concession agreement where the engineering, procurement and construction contract of the initial 193km has been awarded to a consortium comprising IJM Construction Sdn Bhd and Kumpulan Europlus Bhd (KEB).

It added that the construction of the 40km stretch has been deferred, while the remaining 83km consists of non-tolled existing roads that would be upgraded by the Malaysian authorities concurrently with the construction of other sections.

In a statement, RAM said the long-remaining life of the concession of about 36 years provides room for such an exercise, and WCESB’s cashflow over the concession period is expected to sufficiently support its debt repayment.

“Based on RAM’s sensitised cashflow analysis, WCESB is not expected to generate sufficient pre-financing cashflow to match its debt repayment obligations, necessitating the injection of monetary support from its shareholders in the early years of the proposed sukuk’s tenure.

“The company expects to refinance a lumpy repayment of the syndicated term-loan facility by financial year March, 2028. On this note, the long remaining life of the concession (at least 36 years) provides room for such an exercise, and WCESB’s cashflow over the concession period is expected to sufficiently support its debt repayments.

“In addition, the GSL has been structured based on repayment terms that do not constrain West Coast’s financials, which was low GSL repayments during the proposed sukuk’s tenure,” RAM said.

It also pointed out that WCESB’s shareholders, IJM Construction and KEB, have undertaken to provide financial support to ensure the completion of the expressway along with a cash-deficiency undertaking for up to RM400 million to meet shortfalls in financial obligations.

“Project costs and financing sources are well matched, leaving no room for construction delays or cost overruns. Should the latter events take place, the WCE’s completion will be dependent on shareholder support,” it added.

However, RAM noted with most concession-related project WCESB was exposed to regulatory and single-project risks.

Meanwhile, RAM pointed out that soft soil conditions along the coastal stretches, an elevated section in Selangor and large land acquisitions would be some key construction challenges that IJM Construction might experience.

“That said, in mitigating such challenges, detailed soil investigations have been conducted since 2007, while some cost and timing provisions have been made.

“For land acquisition, the government will bear costs of up to RM980 million, while any excess will be borne by WCESB,” said RAM.

The expressway is expected to provide a shorter and quicker option for north-south commuters along the west coast, with initial traffic flow stemming from daily commuters in Shah Alam and Klang.