RAM Ratings reaffirms C2/Stable rating of LEKAS's Sukuk

03/12/2014 10:09 AST

RAM Ratings has reaffirmed the C2/Stable rating of Lebuhraya Kajang-Seremban Sdn Bhd’s (LEKAS or the Company) MYR 633 million Junior Sukuk Istisna’ (Junior Sukuk) (2007/2025). LEKAS is the highway concessionaire for the 44-km Kajang-Seremban Highway (KSH or the Highway) until May 2039.

The reaffirmation of the rating is based on the low likelihood of repayment of the Junior Sukuk. LEKAS concluded a debt-restructuring exercise in October 2013, upon which its MYR 785 million Senior Sukuk Istisna’ (Senior Sukuk) was refinanced via a MYR 400 million Syndicated Term Loan (STL) and MYR 263 million of Redeemable Convertible Secured Islamic Debt Securities (RCSIDS). Following the restructuring, the terms of the Junior Sukuk have been amended such that the STL and RCSIDS must be fully repaid before any payment in relation to the Junior Sukuk can be made.

Owing to a mismatch between LEKAS’s annual cash-generating capacity and the lumpy one-off repayment of the RCSIDS in April 2023, we expect the RCSIDS to be refinanced upon maturity. As such, until the full repayment of the RCSIDS takes place, payments under the Junior Sukuk (which are to commence in June 2023) will not be permissible, indicating the low likelihood of repayment and the deeply subordinated position of the Junior Sukuk.

However, LEKAS is expected to sufficiently cover its annual STL repayments, based on RAM’s sensitised analysis which indicates that the Company will generate an average annual pre-financing cashflow of MYR 74.8 million throughout the tenure of the Junior Sukuk.

Average daily traffic on the Highway stood at 52,244 vehicles in FY Mar 2014, which was within RAM’s expectations, having grown at a CAGR of 15 per cent over the past four years.

Elsewhere, as with most concession-related projects, the Company is exposed to regulatory and single-project risks.

CPI Financial