RAM Ratings has reaffirmed the AAA(bg)/Stable rating of EKVE Sdn Bhd's (EKVESB or the Company) Guaranteed Sukuk Murabahah Facility of up to RM1,000 mil in Nominal Value (the Sukuk). The rating reflects the irrevocable and unconditional guarantees extended by AAA-rated Maybank Islamic Berhad and Bank Pembangunan Malaysia Berhad. Under a 50-year concession agreement (CA) with the Government of Malaysia (GoM), EKVESB is the concessionaire of the East Klang Valley Expressway (EKVE or the Project or the Expressway) a 36.16-km closed-toll system from Sungai Long in Kajang to Ukay Perdana in Ampang.
Following approval for the third construction work programme (CWP), the EKVE has been facing construction delays amid setbacks in obtaining approval for controlled rock blasting and limited accessibility due to hilly terrain. The Company, however, expects the Expressway to be completed by July 2020. Although the Project is envisaged to be completed within the RM1.55 bil budgeted cost, our sensitised cashflow projections have factored in a six-month delay with a 5% cost overrun. The Company's sole shareholder, Ahmad Zaki Resources Berhad, has undertaken to cover all potential cost overruns to ensure that EKVESB meets its financial covenants, and to assist the Company to honour its obligations under the Sukuk.
Considering the construction- and traffic-related risks in our sensitivity analysis, EKVESB may need to refinance its financial obligations by 2021 in the absence of financial support from its shareholder. While the Expressway will complete the Kuala Lumpur Outer Ring Road network and improve connectivity for north-south traffic flows in the eastern part of the Klang Valley, its traffic volume will remain subdued amid high initial toll rates and competition from the Sungai Besi-Ulu Kelang Expressway (currently under construction) as well as the Sungai Buloh-Kajang MRT line.
As with most concession-related projects, the Company is exposed to regulatory and singect risks.
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