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Wednesday, 2 March 2016

Malaysia: Maju proposes RM1.3b sukuk for MEX II

KUALA LUMPUR: Maju Holdings Sdn Bhd via its unit MEX II Sdn Bhd (MEX II), the toll concessionaire for the Lebuhraya Putrajaya-KLIA extension (MEX extension), has proposed to issue up to RM1.3 billion in Islamic securities.
Malaysian Rating Corporation Bhd (MARC) said yesterday it had assigned a preliminary ratings of AA-IS and A- to the special purpose company’s proposed RM1.3 billion sukuk murabahah programme and RM150 million junior bonds issuance.
“The outlook on the ratings is stable,” it said.
“The stable outlook underpins MARC’s expectation that the project sponsor will adhere to the pre-determined capital commitment under the financing structure and the construction of the MEX extension will progress in line with the schedule and budget,” it added.
MEX II is the toll concessionaire undertaking the design, construction, operation, maintenance, toll collection and financing of the 16.8km MEX extension under a 33-year concession agreement with the government.
The estimated project cost of RM1.49 billion will be mainly funded by the proceeds from the sukuk murabahah and junior bonds issuances under a proposed debt and equity mix of 83:17.
“The rating on the proposed sukuk murabahah reflects MARC’s expectations that MEX II’s debt obligations will be adequately met by the cash flow generated by the anticipated traffic flow on the MEX extension.
The open-toll three-lane dual carriageway expressway commencing from the Putrajaya exit of the existing 26km Maju Expressway (MEX) and ending about 6km from Kuala Lumpur International Airport (KLIA).Upon completion, the MEX extension via MEX would be the shortest alternative to the country’s international airports from KL city.
MARC noted that the toll concessionaire’s parent company and project sponsor Maju Holdings will undertake the construction, which is scheduled to be completed within 36 months with tolling operations targeted to commence in November 2018.
“MARC views Maju Holdings’ past track record in road works and infrastructure construction, including the timely completion and delivery of the MEX project, to mitigate construction risk.
“In addition, the project sponsor will provide an undertaking to address any construction cost overruns,” it said.
It pointed out that from the liquidated and ascertained damages arrangement under the turnkey contract and the pre-funded finance service of six months provides a buffer for loss of toll revenue and cash flow mismatch arising from any project delay.
It added that the MEX extension project is also not likely to face land acquisition issues given that the land for the extension was fully acquired by the government and gazetted on April 27, 2000.
 MARC reckons that as the MEX extension is aligned with the existing MEX at its Putrajaya toll plaza, the former is likely to capture a portion of the latter’s traffic flows.
According to a traffic study by Jacobs Engineering Group Malaysia Sdn Bhd, the MEX extension is expected to achieve an average daily traffic (ADT) of 43,183 in the first operating year with an annual compounded traffic growth of 3.9% throughout the financing tenure.
MARC considers the traffic performance to be sensitive to toll increases which are scheduled every five operating years given that users will comprise mainly non-commuters.

“While MEX II is entitled to government toll compensation in the event of toll hike deferments, the compensation is capped by the projected toll revenue in the concession agreement. MARC opines that this compensation structure would limit any potential upside in the project cash flow coverage levels,” it said.

(The Sun Daily / 02 March 2016)
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