MRCB close to disposing of the Eastern Dispersal Link

Toll abolition: An analyst says MRCB faces some hurdles in selling the highway due to valuation disparities and the debt structure of the EDL.

MALAYSIAN Resources Corp Bhd’s (MRCB) plan to dispose of its Eastern Dispersal Link (EDL) is on track, following the Government’s decision to abolish toll collection on the highway.

MRCB will likely be compensated by the Government, according to analysts.

“Highway concessionaires whose tolls had been abolished were compensated for their equity and loss of returns. The Government would assume the debt attached to the highway,” says an analyst.

The construction of most highways is financed largely by debt. The coupon and repayment schedule for these bonds are usually structured to match the cash flow from toll collection.

Another analyst reckons that the announcement in the budget will expedite the process of the disposal.

“MRCB faces some hurdles in selling the highway due to valuation disparities and the debt structure of the asset,” the analyst says.

MRCB has tried to dispose of the EDL highway for more than a year and so far, there have been two suitors.

PLUS Malaysia Bhd is said to be one of the interested parties.

In a filing with Bursa Malaysia yesterday, MRCB said that it would make the necessary announcement upon further details from the Government.

Aside from the EDL, the Government also announced the abolition of toll collections at Batu Tiga and Sungai Rasau, Selangor, as well as Bukit Kayu Hitam, Kedah, which are managed by PLUS.

MRCB, which is in the midst of a rights issue exercise, saw its share price increasing more than 13% this week to close at RM1.03 yesterday.

Despite having an impressive construction order book of RM7bil, the EDL has been a drag on MRCB’s balance sheet.

In July, RAM Ratings wrote in a report that MRCB has over the last two years injected RM58mil into the EDL and on June 21, 2017, injected an additional RM67mil to fully repay the term loan lenders.

“Given the persistent mismatch between MRCB Southern Link’s annual cash generation and annual debt repayment owing to the lower than expected traffic volume of the 8.62km EDL, the company continues to rely on shareholder support to repay its dues,” RAM said pertaining to the EDL’s RM845mil senior sukuk programme.

As at Dec 31, 2016, MRCB’s borrowings amounted to RM2.94bil, which includes more than RM1bil bonds linked to the EDL highway in Johor.