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RAM Ratings to downgrade LEKAS’s junior Sukuk rating

Wednesday, 2 October 2013

KUALA LUMPUR: RAM Rating Services Bhd is expected to downgrade the ratings of Lebuhraya Kajang-Seremban Sdn Bhd’s (LEKAS) Junior Sukuk rating to be downgraded upon completion of refinancing exercise.

Below is the statement issued by RAM Ratings on Wednesday:

RAM Ratings said on Wednesday LEKAS is in the midst of concluding a debt refinancing exercise in respect of its RM785mil Senior Sukuk Istisna’ (Senior Sukuk), after which RAM Ratings will no longer have a rating obligation on the facility.

We will, however, continue to maintain rating surveillance on its RM633 million Junior Sukuk Istisna’ (Junior Sukuk). 

Post refinancing, the Junior Sukuk will be downgraded to C2/Stable/- (from B1/Negative/-) which reflects a very low likelihood of LEKAS meeting the scheduled repayments and the financing instrument’s subordinated position.

We currently understand that the salient terms of the refinancing exercise have been agreed by all relevant parties and that the requisite approvals have been obtained. 

The refinancing of the Senior Sukuk (BB1/Negative/-) entails the issuance of a RM400 million syndicated term loan (STL) and RM263 million of redeemable convertible secured Islamic debt securities (RCSIDS) and up to RM10 million to be funded by LEKAS’s internal funds. 

Under the refinancing terms, the STL is required to be fully settled first, followed by a full repayment of the RCSIDS, before the Junior Sukuk can be repaid.

The repayment of the STL is projected to be termed out over 9 years from its issuance, while the RCSIDS will be repayable as a bullet repayment in April 2023. Owing to a mismatch in cash generation and the RCSIDS lumpy repayment, our assessment indicates that LEKAS will need to refinance the RCSIDS at their maturity. 

Pending the full repayment of the RCSIDS, the Company will not be permitted to meet its scheduled repayments under the Junior Sukuk, which commence in June 2023.

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