KUALA LUMPUR: RAM Rating Services Bhd (RAM Ratings) has downgraded the ratings of MRCB Southern Link Bhd’s debt issues with a negative outlook.

The RM845 million senior sukuk was lowered to BB1 from BBB3 previously, while its RM199 million junior sukuk was downgraded to B1 from BB1. MRCB Southern Link is a funding conduit for the construction-related costs of the 8.1km Eastern Dispersal Link Expressway (EDL) in Johor Baru.

In a statement yesterday, the rating agency said the downward revision was anchored on MRCB Southern Link’s weaker cash generation and the potential insufficiency of funds to repay both sukuk issues should traffic not recover and should it not undertake a refinancing exercise in the near to medium term.

RAM Ratings noted that as an interim measure to stave off a liquidity crunch, MRCB Southern Link is in the midst of procuring a bank guarantee of up to RM90 million, which is expected to replace current cash reserves in the company’s finance service reserve accounts (FSRAs).

“Upon the procurement of the guarantee facility, monies in the FSRAs will be available to repay near-term financial obligations of the company.

“While this addresses short-term liquidity concerns, we highlight that the company could potentially face a cash shortfall when the junior and senior sukuk become due in December 2016 and December 2018, respectively,” said RAM Ratings.

It said MRCB Southern Link plans to undertake a refinancing exercise by mid-2015 and future rating action will, therefore, hinge on the pace of completion of any refinancing exercise as well as the EDL’s traffic performance.

Since tolling commenced on the EDL on Aug 1 this year for vehicles crossing the Johor Baru-Singapore Causeway, daily traffic on the expressway has been significantly lower than anticipated.

This was due to a combination of unexpected developments, such as the toll charge payable for cars (Class 1 vehicles) crossing the causeway surging from RM5.90 earlier this year to RM33 for a return trip as at Oct 1 this year, signifying a 460% increase.

“This excludes the vehicle entry permit fee imposed on foreign-registered cars by the government of Singapore of S$35 (RM92.49), which was revised upwards from S$20 effective Aug 1 this year,” said the rating agency.

It added that the prohibitive costs of driving across the causeway had resulted in daily traffic for the first three months of tolling at 45,341 vehicles, compared with previous expectations of 61,000 vehicles in 2014.

This article first appeared in The Edge Financial Daily, on December 19, 2014.