Friday, September 7, 2012

MRCB: What’s NEXT! … dated Aug 2012

PM’s office in charge of the EPU Tan Sri Nor Mohameed Yakcop said that the government is to take over the EDL from MRCB. The takeover would be discussed later between the parties.
The highway was opened to the public on April 2012 however the government announced in March 2012 that EDL would not be commencing tolling as per the terms of the concession agreement.
But market observers ultimately would hinge on the final price of the EDL by MRCB to the Government.
This development meant that MRCB would be able to reduce its gearings. However, in the longer term a highway provides a reliable income stream, and MRCB may lose out because of this sale. But since there may have been pressure for MRCB to lower toll rates, this purchase is a good alternative.
At the moment, the bond market awaits in anticipation of the price that the Government will fork out for acquiring the Johor-based Eastern Dispersal Link (EDL) from Malaysia Resources Corp Bhd (MRCB). This is because the quantum of that payment will have a bearing on MRCB's ability to repay its bondholders tied to the EDL.
To finance the project, MRCB's unit MRCB Lingkaran Selatan Sdn Bhd (MSLB) was reported in 2008 to have issued Islamic bonds consisting of senior sukuk of up to RM900mil and junior sukuk of up to RM230mil.
As at December 31 2011, MRCB had senior and junior sukuk amounting to RM1.06 billion, which were secured by the EDL project and repayable in a series of yearly redemption commencing in 2018. MRCB is required to service the finance costs - to the tune of RM7 million a month - despite no toll charges for the EDL.
It is learnt that MRCB has accumulated some RM40 million start-up losses for the EDL when it opened in April 2012.
The EDL project, which is MRCB's second in terms of tolled expressways, had been opened earlier 2012. It was completed in January 2012 with a 34-year concession investment and disperses traffic in downtown Johor Baru, linking the Sultan Iskandar Customs, Immigration & Quarantine (CIQ) complex at Bukit Cagar with the North-South Expressway (PLUS highway) at the Pandan interchange.
News reports had highlighted earlier 2012 that many people were unhappy with the proposed toll rates of RM6.20 per travel. Reports to-date indicate that the Government has yet to approve the toll charges while motorists are still using the EDL for free until today (Sept 2012).
In Aug 2012, RAM Ratings downgraded the long-term ratings of two of the secured sukuk issues and warned that there was a high possibility of the company defaulting on them come December 2012. It had downgraded MSLB's RM845mil senior sukuk to BB3 (from A2), and the RM199mil junior sukuk to C1 (from BBB2). Both ratings remained on negative watch.
Meanwhile, MRCB would be able to free up necessary capital to focus on property development. On a discounted cash flow basis, the EDL asset could be worth around RM1bil.
Market observers do not discount a special dividend payout post takeover and some of it could also be used to fund new property projects. It can go either way.
The plan was good for MRCB on the surface and it fitted into the bigger theme of rationalising the country's highway assets. There could be a special dividend payout for MRCB's shareholders but the proceeds from the sale could also go towards future la ndbanking exercise to secure financial growth with profitable investments.
RAM Ratings had in Aug 2012 downgraded MRCB's unit MRCB Southern Link Bhd's debts on the premise of the company's significant liquidity stress as it was not allowed to commence tolling as set out in the concession agreement.

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