KUALA LUMPUR (July 7): MARC Ratings Bhd has affirmed its AA-IS/Stable rating on Lebuhraya DUKE Fasa 3 Sdn Bhd's (DUKE 3) RM3.64 billion sukuk wakalah.

DUKE 3 is the concessionaire for the 32km Setiawangsa-Pantai Expressway (SPE) under a concession that runs through Aug 5, 2069. 

In a statement on Friday (July 7), MARC said that the sukuk is fully amortising; with annual debt service back loaded with gradual ramp-up to RM440 million at maturity in 2039. 

The rating agency said it provides some headroom for DUKE 3 to build up traffic volume, generate cash and meet its financial obligations. 

“The rating continues to incorporate the adequately structured sukuk repayment profile that accommodates traffic ramp-up on SPE,” said MARC. 

It also considered SPE’s well-positioned alignment within mature catchment areas. 

“The project is practically complete with only minor work remaining,” it said.

“The company received its Certificate of Practical Completion on May 21, 2023, and inspections by Lembaga Lebuhraya Malaysia are currently underway.” 

“The concessionaire expects SPE to fully open by end-July 2023." 

MARC noted that the annual average daily traffic remained significantly below its forecast of 32,717 vehicles, despite traffic at the Wangsa Maju toll plaza improving to 6,375 vehicles in the first four months of 2023, versus 5,058 vehicles in 2022.

Toll collection commenced since March 1, 2022, it said. 

“We believe usage may improve once SPE is fully operational but would require a considerable ramp-up.”

“Nevertheless, the company has no immediate liquidity pressure of significant debt maturing in the short to medium term." 

MARC noted that DUKE 3 has a cash position of RM259.6 million as of end-May 2023 to cover liquidity needs, including approximately RM94 million to complete SPE. 

“DUKE 3’s cash position is further supported by RM90 million to be placed by project sponsor Ekovest Berhad into the Operating Revenue Account (ORA) upon project completion.”

“At the same time, the RM184.5 million currently in the Construction Reserve Account will also be transferred into ORA.” 

“The total RM274.5 million in ORA — in the form of an irrevocable and unconditional bank guarantee — can be drawn down partly or fully when required.” 

The rating agency also assumed full tolling in October 2023, a more conservative six-year traffic ramp-up to financial year 2030 (FY2023) from FY2025. 

“We have also assumed repayments of the Reimbursable Interest Assistance (RIA) of RM560 million are deferred to after full settlement of the sukuk in FY2040 — the RIA is technically subordinated to the sukuk in terms of cash flow or payment priority, as well as a one-year deferment in toll compensation in lieu of toll hikes.”

It added that under the rating case, average and minimum finance service cover ratio — with cash and ORA — are projected at 2.1 times and 1.5 times (2034) thus meeting the covenanted 1.5 times. 

In terms of financial flexibility, MARC said that the current financing structure provides DUKE 3 with a 30-year tail period which provides room for a refinancing exercise if required.