RAM Ratings has reaffirmed the A1/Negative rating of Projek Smart Holdings Sdn Bhd's (Smart Holdings or the Company) IMTN Facility of up to RM330 mil in nominal value (2015/2032) (the existing Sukuk). The reaffirmation of the rating is based on the Company's stand-alone project cashflow and the added liquidity from partial refinancing via the unrated RM250 mil Islamic MTN Programme (unrated sukuk) to be issued by Smart Holdings.
The unrated sukuk is backed by an irrevocable and unconditional underwriting commitment from an institutional investor to subscribe up to RM220 mil of the RM250 mil unrated sukuk programme. The unrated sukuk will be issued in pre-determined amounts annually between 2020 and 2032. The issuance dates will coincide with the principal redemption dates of the existing Sukuk.
After considering the additional inflows from the unrated sukuk, our analysis indicates that Smart Holdings will register respective minimum and average finance service coverage ratios (FSCRs) of 1.75 and 2.02 times (with cash balances). These are commensurate with an A1 rating under RAM's project-finance rating framework. Without the unrated sukuk, the Company will face a mismatch between its annual cash-generating ability and annual debt repayment obligations from September 2023 onwards.
Meanwhile, we have maintained the negative rating outlook to reflect the continued pressure on the traffic turnaround prospects of the Stormwater Management and Road Tunnel Project (SMART Tunnel or the Tunnel). Any deterioration in the Tunnel's traffic volume beyond RAM's expectations will adversely affect the Company's cashflow and debt-servicing ability.
While a turnaround in traffic performance in the medium to long term is probable, the Tunnel's traffic growth prospects remain challenged by the delays in the Tun Razak Exchange (TRX) development, the deferment of the Bandar Malaysia project, and the Government's ongoing efforts to improve Malaysia's public transportation iture. Coupled with the Tunnel's scheduled tariff increase, we expect the Tunnel's average daily traffic (ADT) to come in at 21,000 vehicles throughout the remaining tenure of the Sukuk. That said, its ADT of 22,382 vehicles in 2017 and 22,321 in September 2018 were within RAM's expectations.
While the Government has recently proposed to acquire SMART Tunnel from Gamuda Berhad, details on timing, mode of implementation and funding information are still scant. RAM will closely monitor the relevant developments and take the appropriate action as and when required.
Smart Holdings is the sole shareholder of Syarikat Air Banjir dan Terowong Sdn Bhd (SMART), which in turn is the concessionaire for the SMART Tunnel. The Tunnel comprises the Stormwater Channel and Motorway; the construction and concession agreement spans 40 years from 1 January 2003. As with other toll concessionaires, SMART is inherently exposed to regulatory and single-project risks.
Ong Ju Laine
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