RAM Ratings: MRCB Lingkaran Selatan Likely to see EDL Traffic Dip With New Fee

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1. Media Release RAM Ratings : MRCB Lingkaran Selatan likely to see EDL traffic dip with new fee RAM Ratings expects traffic volumes on MRCB Lingkaran Selatan Berhad’s (MRCB Lingkaran Selatan or the Concessionaire) 8.62-km Eastern Dispersal Link (EDL or the Expressway) to be negatively impacted by Malaysia’s move, effective 1 November 2016, to impose a new RM20 fee on all foreign-registered vehicles entering the country through the Johor-Singapore Causeway and the Tuas Second Link, as well as a potential retaliatory measure by Singapore. The RM845 million Senior Sukuk of MRCB Southern Link Berhad (MRCB Southern Link or the Company), the funding conduit for the EDL, is rated BB3/negative. Already weak traffic volumes since the commencement of tolling on the EDL would in our view slide further subsequent to the imposition of the latest fee. In this regard, any deterioration in traffic in the immediate term will lead to a correspondingly wider mismatch between the Company’s annual cash generating ability and its annual debt repayments. In our rating announcement on the Sukuk’s latest rating, dated 19 October 2016, we had highlighted that the rating would likely be downgraded in the coming months, particularly if buyout offers – from PLUS Malaysia Berhad and an undisclosed client of ZJ Advisory Sdn Bhd – do not materialise and/or the Company fails to make headway in its refinancing plans. Since tolling began on the EDL on 1 August 2014, daily toll charges for cars traversing the Causeway had increased 6-fold (from RM6 to RM36). The latest RM20 per entry fee imposed by the Malaysian Government on foreign-registered vehicles and any move by the Singapore Government to match the fee will result in the ballooning of daily cost of travel (by car) across the Causeway. The availability of cheaper alternatives such as KTM Berhad’s Shuttle Tebrau train and the Causeway Link Bus, both of which have experienced higher demand since the EDL started tolling, is anticipated to see the increased migration of daily commuters to public transportation.
2. Table 1 : Changes in toll charges for Class 1 vehicles using Causeway (2-way journey) Toll collection for Class 1 vehicles Malaysian Checkpoint Singapore Checkpoint Total toll charge (2-way) RM5.98 Singapore VEP charge (per entry)(3) SG$20 Malaysia VEP charge (per entry) - Before 1 August 2014 1 August 2014 RM2.90 RM3.08(1) (SG$1.20) RM16.50 RM3.08(1) (SG$1.20) RM19.58 SG$35 - 1 October 2014 RM16.50 RM19.58(2) (SG$6.50) RM36.08 SG$35 - 1 November 2016 RM16.50 RM19.58(2) (SG$6.50) RM36.08 SG$35 RM20(4) Note: (1) Exchange rate on 26 September 2014: SG$1 = RM2.5666 (Source: Bloomberg) (2) Exchange rate on 31 October 2016: SG$1 = RM3.0129 (Source: Bloomberg) (3) No Vehicle Entry Permit (VEP) fee payable during offpeak hours and on Singapore public holidays. (4)Quoted by Malaysian Transport Minister Datuk Seri Liow Tiong Lai on 28 October 2016 (Source: www.thestar.com.my) The EDL’s traffic performance has largely remained volatile since tolling commenced, with average daily traffic coming in at 46,808 vehicles in August 2014 (first month of tolling) and hovering at 41,347 vehicles (-5,461 vehicles or -11.7%) in September 2016. Analytical contacts Chinthamani Thanneermalai (603) 7628 1013 chinthamani@ram.com.my Media contact Padthma Subbiah (603) 7628 1162 padthma@ram.com.my Date of release: 4 November 2016 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
3. Media Release  Copyright 2016 by RAM Rating Services Berhad