Published: Wednesday August 8, 2012 MYT 5:02:00 PM
RAM Ratings downgrades MRCB Southern Link's Sukuk ratings
RAM said on Wednesday it had lowered the rating of the RM845 million secured senior Sukuk (2008/2025) A2 from AA3.
It also lowered the rating of the RM199mil juior Sukuk (2008/2027) to BBB2 from A2. Both ratings remain on negative Rating Watch.
MRCB Southern Link is a funding conduit for the 8.1-km Eastern Dispersal Link Expressway (EDL) in Johor Bahru which was opened to the public on April 1, 2012.
"The rating downgrades are premised on uncertainties arising from the absence of a long-term solution to the highway's inability to commence tolling as per the terms of its concession agreement (CA).
"Since the announcement on non-tolling of the EDL in March 2012, a final resolution has yet to be reached to date," it said.
RAM Ratings said the respective Senior and Junior Sukuk ratings of A2 and BBB2 were based on the assumption, as represented by the management, that the government would implement a short-term measure to address MRCB Southern Link's immediate cashflow position.
It said without this short-term measure, the ratings would face even greater downward pressure.
"We understand that the government is evaluating several long-term solutions to permanently address the non-tolling of the EDL; however, details have yet to be firmed up at this juncture.
"Overall, we believe that achieving and executing a conclusive long-term solution will take time, given the many factors that the government would need to consider," it said.
RAM Ratings highlighted that MRCB Southern Link recently paid some RM40mil to the engineering, procurement and construction (EPC) contractor (a related company).
The ratings agency pointed out this was contrary to the company's earlier representation that the amount would be withheld from the EPC contractor, so as to prioritise debt servicing.
"Under the circumstances, MRCB Southern Link's ability to service its near-term debt obligations has been further affected," it said.
RAM Ratings said the rating difference between the senior and junior Sukuk was due to the Junior Sukuk's subordination in terms of cashflow priority and security.
It explained the current rating gap between the Senior and Junior Sukuk, now widened from two to three notches, reflected the latter's role as a loss-absorption piece, as well as the increased likelihood that MRCB Southern Link might not be able to meet its debt obligations.
"Finally, the negative Rating Watch reflects the probability that the ratings could come under significant downward pressure within the next two weeks, if the RM40mil outflow is not replenished, or if the government's short- and long-term measures are not implemented to address the company's immediate cashflow woes," it said.