KUALA LUMPUR: Malaysian Rating Corp Bhd (MARC) has affirmed AA-IS rating on Lebuhraya DUKE Fasa 3 Sdn Bhd’s (DUKE 3) RM3.64 billion Sukuk Wakalah, with a stable outlook.
MARC affirmed the its ratings based on factors that DUKE 3 is making sufficient progress on the construction.
In addition, the agency said the adequately structured sukuk repayment profile has accommodated the traffic ramp-up of the DUKE Phase 3 expressway.
DUKE 3, a wholly-owned subsidiary of Ekovest Bhd (Ekovest), is the concessionaire of the 32.1km DUKE Phase 3 expressway in Kuala Lumpur under an agreement with the government ending August 5, 2069.
The expressway is currently under construction and will connect the Middle Ring Road 2 at Wangsa Maju to the Kerinchi Link adjoining the Federal Highway upon completion.
The overall progress of the DUKE Phase 3 expressway stood at 3.32 per cent as at end-June 2017, against scheduled progress of 7.00 per cent.
Further, MARC noted that slower progress is mainly attributed to delays in highway design works.
However, the targeted completion date remains unchanged on December 31, 2019 as the progress shortfall is expected to narrow with additional manpower during structural works, it said.
"Should there be any cost arising from the delay, it would be passed to the contractor through the back-to-back liquidated ascertained damages arrangement under the fixed-sum contract," MARC affirmed.
The agency also highlighted that as at July 31, 2017, DUKE 3 has incurred RM751 million on the project while designated account balances stood at RM3.8 billion.
MARC opines that a timely disbursement of reimbursable interest assistance (RIA) totalling RM560 million from the government is crucial to meet the project payment milestones.
The first scheduled RIA payment of RM100 million was only received in July 2017.
DUKE 3 has yet to receive the second RIA payment of RM250 million scheduled in 2017 while the final RIA disbursement of RM210 million is scheduled in 2018.
If the RIA payments are not forthcoming by end-2018, DUKE 3 could face challenges in meeting the project cost estimated at RM5 billion.
DUKE 3’s project cash flow coverage has been unchanged since the rating was first assigned. The average finance service cover ratio (FSCR) of 2.46 times during the sukuk tenure is supportive of the current rating level.
MARC’s sensitivity analysis also indicates that DUKE 3’s FSCR would remain resilient under adverse scenarios.
"The project cash flow can withstand up to 11 per cent construction cover overrun or up to 12 months’ delay in the tolling operations date before breaching the FSCR covenant of 1.50 times in 2023 and 2026 respectively," MARC said.