KUALA LUMPUR (Dec 21): Malaysian Rating Corp Bhd (MARC) has affirmed Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd's (Kesturi) senior sukuk worth RM2.3 billion and junior bonds worth RM180 million at AA-IS and A- ratings respectively.

In a statement today, the local rating agency said the outlook on both ratings is stable.

"The three-notch rating differential between the senior sukuk and junior bonds reflects the potential coupon deferral risk, as well as its subordination to the senior sukuk in respect of security ranking and payment priority," it added.

Kesturi, a wholly-owned subsidiary of Ekovest Bhd, is the toll concessionaire for the 18km Duta-Ulu Kelang Expressway (DUKE), which links matured catchment areas in the east and west parts of Klang Valley and the 16km DUKE Phase-2 which is under construction. The concession period is until August 2059, with an option to extend for 10 years.

As at Sept 30, 2016, the overall construction progress of DUKE Phase-2 was 90.1% against the scheduled progress of 96.6%.
 
The rating agency said the rating affirmation incorporates the satisfactory traffic performance of DUKE and the near-completion status of DUKE Phase-2 that mitigates construction and completion risks.

"The ratings also consider the sufficient liquidity buffer in the project accounts and manageable debt amortisation profile to withstand any cash flow mismatch arising from the shift in the completion date from Dec 14, 2016 to Feb 12, 2017, for which Kesturi has received the government’s approval," it added.

MARC views that the risk of a prolonged construction delay of more than six months from the new completion date of DUKE-2 is low as the engineering, procurement and construction contractor Ekovest Construction Sdn Bhd has taken additional measures to prevent further progress delay, including mobilising manpower, machineries and material.

In addition, issues related to project site and traffic management in certain areas that had led to the delay have now been resolved, added MARC.
 
For the financial year ended June 30, 2016 (FY2016), traffic volume on DUKE registered a slower growth of 1.2% to 130,587 vehicles, with actual average daily traffic falling short of projections by 3.4%. This may be attributable to the increased toll rates since Oct 15, 2015.

Over the near term, MARC expects performance variance on DUKE to widen further in light of the slower-than-expected traffic volume recovery post-toll hike and the anticipated delay in traffic contribution from DUKE Phase-2.

The near-term traffic risk is also cushioned by the non-demanding sukuk repayment between 2019 and 2021, providing some headroom for traffic ramp-up in both DUKE and DUKE Phase-2.