KUALA LUMPUR (Aug 9): MARC Ratings warned on Friday that it may downgrade the rating of a toll concessionaire unit of Ekovest Bhd (KL:EKOVEST) in the intermediate term, citing cash flow concerns.

The agency affirmed the investment-grade AA-IS rating on Lebuhraya Duke Fasa 3 Sdn Bhd’s (Duke 3) outstanding RM3.64 billion sukuk. However, the agency has revised the outlook from ‘stable’ to ‘negative’ — which indicates that a rating may be lowered typically over the next one to two years.

“The outlook revision to negative has been prompted by the thinning liquidity buffer to meet its financial obligations under the rated programme,” MARC said. “Given the tolling delay, traffic levels were lower than projected.”

According to MARC, Duke 3’s actual average daily traffic (ADT) between January and June 2024 was about 47% lower than the forecast made under the 2019 traffic study.

It also noted that a new traffic study commissioned in July 2024 has forecast the ADT to be lower by 40%-45% from the 2019 projections.

Duke 3, which is wholly owned by Ekovest, is the concessionaire for the 32km Setiawangsa-Pantai Expressway that connects the Middle Ring Road 2 at Wangsa Maju to Kerinchi Link adjoining the Federal Highway.

Back in January 2016, the company struck a 53.5-year concession agreement with the government, with the right to extend by 6.5 years if the highway does not achieve the projected internal rate of return.

The government has also helped Ekovest with a RM560 million interest-free advance to cover the first eight years of interest payments during the highway gestation period, in exchange for no toll hikes during a period of the concession.

Based on financial filings, Ekovest's net gearing ratio more than doubled to 2.5 times from 1.2 times in 2016.  

So far, based on assessment made, MARC noted that Duke 3’s near-term liquidity would be only modestly sufficient to meet its financial obligations up to Aug 23, 2025.

“It is projected to have about RM387.7 million against principal repayments and profit payments totalling RM338.5 million.”

MARC highlighted that Duke 3 would need to address its tight liquidity position promptly by undertaking measures, among which is pursuing a sukuk restructuring plan within the next 12 months.

Some other measures could include a potential asset monetisation and the potential entrance of a new equity partner.

Duke 3 only started tolling on Dec 3, 2023, which was three years later than the original forecast date due to considerable delays in project completion following changes in alignment and pandemic-induced restrictions. The company expects some compensation payout from the government arising from the delays.

Nevertheless, MARC thinks the sukuk restructuring may be viable in view of Duke 3’s long concession period until Aug 5, 2069.

Duke 3 has sought sukukholders’ waivers for certain non-compliance of terms to make way for the sukuk restructuring exercise. It was noted that the company expects this to be resolved before August.

Ekovest’s shares closed up 1.5 sen to 40.5 sen on Friday, giving the company a market capitalisation of RM1.2 billion.