MARC has affirmed its rating of AA-IS on Cerah Sama’s RM420.0m Sukuk with a stable outlook.
Cerah Sama is the investment holding company of Grand Saga Sdn Bhd (Grand Saga), the concessionaire of the 11.5-kilometre Cheras-Kajang highway that serves as a commuting link for mature catchment areas along the highway. The affirmed rating primarily reflects Cerah Sama’s adequate cash flows generated by steady traffic flow on the highway. The rating also factors in the sufficient liquidity reserves and manageable Sukuk repayment under the structure. Moderating the rating is the potential impact on traffic volume on the highway from the impending operations of the Klang Valley Mass Rapid Transit (KVMRT) Line 1 and Cerah Sama’s high leverage position with its debt-to-equity (DE) ratio standing at 4.13 times at end-10M2016.
The revised base case projections show minimum and average pre-distribution financial service cover ratio (FSCR) with cash balance of 2.10 times and 3.91 times respectively throughout the Sukuk tenure. In MARC’s sensitivity analysis, Cerah Sama demonstrates a moderate-to-high degree of resilience with respect to the FSCR and is able to withstand up to a 15% decrease in the overall projected traffic volume before breaching the FSCR covenant of 1.75 times. MARC also considers the risk of severe traffic underperformance in the near term to be remote, based on the highway’s operational track record and limited capacity on competing roads during peak hour. Over the medium term, the rating agency views the Cheras-Kajang highway’s ability to achieve the projected volume as crucial to maintain its credit metrics that are commensurate with the current rating band, particularly as the average annual finance service obligations of RM51 million commences in 2020.