Ram Ratings Reaffirms Aa2 Rating Of Bright Focus’ Sukuk, Revises Outlook To Negative

The rating has been reaffirmed based on our view that stronger-than-anticipated traffic performance at the newly opened Seri Kembangan Link (SK Link) is expected to boost the overall cashflow generation of the Maju Expressway (MEX or the Highway). Despite the Chinese New Year holidays during the second week of February 2016 as well as traffic leakage at the Putrajaya toll plaza pursuant to the opening of SK Link, tollable average daily traffic (ADT) at MEX came in at 122,611 vehicles between 1 January 2016 and 21 February 2016. This was 9.3% and 4.5% higher than the actual ADT achieved in 2015 and RAM’s previous ADT assumption for 2016, respectively.

Meanwhile, the revision of the rating outlook to negative from stable reflects our concerns over unanticipated cashflow movements between Bright Focus, its subsidiary, Maju Expressway Sdn Bhd (MESB) (collectively known as the Group) as well as its holding company, Maju Holdings Sdn Bhd. In FY Dec 2015, MESB had made a series of unexpected cash outflows totalling MYR 46 million to Maju Holdings. These cash outflows were made in relation to variation orders (VOs) for the construction of SK Link. As the VOs were eventually concluded at MYR 26.8 million, Maju Holdings repaid MYR 20 million into Bright Focus’ Finance Service Account in February 2016.

While the stronger traffic performance of the Highway had somewhat cushioned the financial impact from the unexpected VOs, Bright Focus’ debt-coverage levels, although still largely within the AA2 threshold, is slightly weaker than the levels seen in the previous rating reviews. The Company’s projected minimum and average finance service coverage ratio (FSCR) (with cash balances, post-distribution) is expected to weaken to 2.17 times and 2.51 times, respectively. The negative outlook will be placed until the Group is able to display a longer and consistent track record of financial discipline. We will continue to monitor Bright Focus and MESB’s cash movements on a monthly basis.

As with other toll-road concessionaires, the Group is inherently exposed to regulatory and single-project risks. While the Government has thus far honored its obligations under the concession agreement, we highlight that any non-monetary compensation will exert downward pressure on Bright Focus’ Sukuk rating. The risk of non-revision is more pronounced for MESB, given its steep tariff increment.

Originally published on www.cpifinancial.net