RAM Ratings has reaffirmed that ratings of Tranche 1 and Tranche 2 of West Coast Expressway Sdn Bhd's (West Coast or the Company) RM1 billion Guaranteed Sukuk Murabahah Programme (2015/2036) at AAA(bg)/Stable and AAA(fg)/Stable, respectively. The ratings reflect irrevocable and unconditional kafalah facilities extended by AAA-rated Bank Pembangunan Malaysia Berhad and Danajamin Nasional Berhad, which enhance the Sukuk's credit standing beyond West Coast's stand-alone credit strength.

The construction of the West Coast Expressway (WCE or the Project or the Expressway) is undertaken by a consortium comprising IJM Construction Sdn Bhd and WCE Holdings Bhd (WCE Holdings)  IJMC-KEB Joint Venture. As at end-August 2017, construction progress stood at 39.51%  behind the scheduled 47.01% or 4.23 months, mainly due to delays in land acquisitions. That said, the Company expects to meet the scheduled completion date by shortening the Project's timeline and accelerating physical works. 

Owing to delays in securing land rights, the Project has seen land acquisition costs exceed the Government's allocation of RM980 million. The Company plans to partially address the additional land costs via the utilisation of cost savings from project expenditure and other ancillary income. With some remaining private land yet to be acquired, any potential further land costs overruns will be funded via equity injection from its shareholders. 

Based on RAM's sensitised cashflow analysis (which incorporates a 6-month delay, construction cost increases as well as land cost overruns), West Coast may need to rely on financial support to honor its financial obligations by August 2018 (or by February 2020 if there are no cost overruns and delays). The long tenure of the concession would also provide room for a refinancing exercise. Additionally, West Coast's shareholders  WCE Holdings and Road Builder (M) Holdings Bhd  have irrevocably and unconditionally undertaken to provide financial suo ensure the completion of the WCE, and up to RM400 million under a cash-deficiency undertaking to cover any short fall that the Company might face in meeting its financial obligations. 

As with most concession-related projects, the Company is exposed to regulatory and single-project risks. 

 

Analytical contact
Ong Ju Laine
(603) 7628 1183
[email protected]

Media contact
Padthma Subbiah
(603) 7628 1162
[email protected]

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security's market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings' credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings' credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
? Copyright 2017 by RAM Rating Services Berhad

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