PETALING JAYA: The West Coast Expressway is not expected to generate sufficient pre-financing cashflow to match its debt repayment obligations, according to RAM Ratings.
The rating agency said it might require the injection of monetary support from developer West Coast Expressway Sdn Bhd’s (WCE) shareholders in the early years of its proposed sukuk’s tenure.
The expressway will be funded via the proposed sukuk, a syndicated term-loan facility, a government support loan (GSL) and shareholders’ equity.
RAM Ratings has assigned an AAA(bg/fg)/Stable ratings to the proposed guaranteed RM1bil sukuk murabahah programme.
“The ratings reflect an irrevocable and unconditional kafalah (guarantee) from AAA-rated Bank Pembangunan Malaysia Bhd and Danajamin Nasional Bhd, which enhances the sukuk’s ratings beyond WCE’s stand-alone credit strength,” RAM Ratings said.
The rating agency noted that WCE expected to refinance a lumpy repayment of the syndicated term-loan facility by the financial year ending March 2028.
“The long remaining life of the concession of at least 36 years provides room for such an exercise, and WCE’s cashflow over the concession period is expected to sufficiently support its debt repayments,” it said.
“The GSL has been structured based on repayment terms that do not constrain WCE’s financials,” it added.
WCE’s shareholders – Kumpulan Europlus Bhd (KEuro) and Road Builder (M) Holdings Bhd, a unit of IJM Corp Bhd – have irrevocably and unconditionally undertaken to provide financial support to ensure the completion of the highway,
The shareholders also have a cash-deficiency undertaking for up to RM400mil to meet shortfalls in its financial obligations.
RAM Ratings noted that project costs and financing sources are well-matched, leaving no room for construction delays or cost overruns. Should the latter events take place, the WCE’s completion would be dependent on shareholder support, it added.
“While IJM Construction has a track record in building toll roads, the concurrent construction of a 193km stretch will be its largest toll-road project to date, which is a new feat to be achieved,” co-head of RAM Ratings’ Infrastructure and Utilities Ratings Davinder Kaur Gill said.
“Soft-soil conditions along the coastal stretches, an elevated section in Selangor, and large land acquisitions will be some of its key construction challenges. To mitigate such challenges, detailed soil investigations have been conducted since 2007, while some cost and timing provisions have been made,” Davinder added.
The Government will bear costs of up to RM980mil for land acquisition, while any excess will be borne by WCE.
The 316 km West Coast Expressway is an alternative route to the North-South Expressway from Banting, Selangor to Changkat Jering, Perak. It is the second-longest inter-state tolled highway and is expected to be completed in five years at a cost of RM5bil.