RAM Ratings has affirmed the A2/Stable rating of MEX I Capital Berhad's (MEX Capital) RM1.13 bil Senior Sukuk Musharakah (2022/2040) (the Sukuk). 

The rating is premised on Maju Expressway's (MEX or the Expressway) favourable project economics and robust cashflow profile. MEX Capital is solely reliant on cash flows from its 96.8%-owned Maju Expressway Sdn Bhd (MESB)  the concessionaire for MEX  to service the Sukuk. The Expressway's strong traffic demand helps support MEX Capital's debt servicing ability as measured by the finance service coverage ratios (FSCRs, with cash balances), which are expected to stay robust at around 2 times under its existing Concession Agreement (CA) terms.

Nonetheless, the current A2 rating incorporates a downward adjustment to reflect our concerns over past lapses in governance and continued volatility in the spending patterns of the transaction parties. Uncertainty over regulatory reforms for the highway sector, which will have a material impact on the transaction's cash flow, also presently limits rating upside.

MESB's dependence on compensation payments (equal to 39% of its revenue for FY 2023) to support its credit profile makes MEX Capital's Sukuk credit quality more susceptible to any CA reform.  In the event of restructuring involving the extension of MESB's concession tenure, with no corresponding toll rate increases or compensation, a refinancing exercise for better matching of transaction cash flows will likely be necessary to maintain current cashflow coverage metrics. We will continue to monitor ongoing highway sector developments and reassess the Sukuk's rating for cash flow, funding profile and credit quality impact as required. In any case, amendments to the CA terms and/or increases in cost allocations beyond permissible levels are still subject to sukukholders' consent. 

Although MESB's permissible spending is among the highest in our rated portfolio, the concessionaire intends to submit a request to sukuk