KUALA LUMPUR (Apr 29): Malaysian Rating Corp Bhd (MARC) has assigned a preliminary rating of AA-IS with a stable outlook on Grand Sepadu (NK) Sdn Bhd's RM210 million sukuk.

Grand Sepadu is a joint venture company in which Taliworks Corp Bhd has a 75% indirect equity interest. It is also the operator of the New North Klang Straits Bypass Expressway.

In a statement today, MARC said the rating reflects the matured and fairly stable traffic profile of the highway, and Grand Sepadu’s moderate leverage and adequate debt service coverage ratio.

The stable outlook, meanwhile, incorporates MARC’s expectations that the toll road concession will generate stable cash flows to service the sukuk.

"Any significant deviation in Grand Sepadu’s traffic performance or delays in implementing the scheduled toll rate hikes without timely compensation will exert downward pressure on the rating and/or outlook," said MARC.

Grand Sepadu plans to use proceeds from the sukuk issuance mainly to repay a loan facility of up to RM200 million and for working capital.

The company had acquired the concession for RM265 million in December 2014, of which the tenure had been extended to 2032. The 17.5km NNKSB highway commences from the North Port intersection to the New Klang Valley Expressway interchange at Bukit Raja in Klang.

MARC said traffic volume on the New North Klang Straits Bypass Expressway grew by an average of 1.6% per year over the last five years.

"Toll revenue grew at an average of 2.8% per year for the past five years, mainly attributed to the high composition of commercial vehicles which command higher toll rates," it added.

According to the independent traffic consultant’s report, traffic on the highway is forecast to grow at a compound annual growth rate of 2.4% during the concession tenure.

Nevertheless, MARC said its sensitivity analysis has demonstrated that Grand Sepadu’s cash flow is able to withstand a traffic volume reduction to an average daily traffic of 76,200 vehicles per day without breaching its covenanted finance service cover ratio (FSCR) of 1.75 times.

"However, as the scheduled toll rate hikes of between 20% and 30% are key drivers of anticipated revenue growth, any toll rate hike deferments or delays in the receipt of government compensation in lieu of scheduled toll hikes could constrain Grand Sepadu’s liquidity," said MARC. The toll rate hikes are scheduled in January 2016, January 2020 and January 2025.

The rating agency also noted that Grand Sepadu’s ability to retain a comfortable liquidity buffer will largely depend on its dividend policy, in particular between 2017 and 2022 when financing obligations are the highest.

"However, Grand Sepadu’s restrictive post-distribution FSCR of 1.75 times will provide sukukholders with adequate protection against excessive cashflow leakages," it said.