[RAM] RAM Ratings upgrades MEX Capital's sukuk to A1, outlook raised to positive

RAM Ratings has upgraded the rating of MEX I Capital Berhad’s (MEX Capital) RM1.13 bil Senior Sukuk Musharakah (2022/2040) (the Sukuk) to A1/Positive from A2/Stable. MEX Capital is solely reliant on cash flows from its 96.8%-owned subsidiary, Maju Expressway Sdn Bhd (MESB) – the concessionaire for Maju Expressway (MEX or the Expressway) – to service the Sukuk. 

The rating upgrade is premised on sustained improvements observed in the Expressway’s traffic performance, which have outperformed forecasted levels since the Sukuk’s issuance two years ago. This, combined with the transaction’s strong cash retention features, translated to MEX Capital’s strong finance service coverage ratios (with cash balances) of above two times. The revision to positive outlook further reflects our expectations that its current credit metrics will continue its upward trajectory, notwithstanding the uncertainties over regulatory reforms for the highway sector which may involve a freeze on toll rate hikes. RAM’s rating for the Sukuk incorporates downward rating adjustments for this risk and past lapses in governance.

Given its strategic alignment, MEX enjoys favourable project economics. It demonstrated a strong post-pandemic recovery and registered robust traffic growth in the last few years. Aided by the new Bukit Bintang Bypass and the 5 km TRX underground tunnel which seamlessly links TRX to a network of 12 major roads and highways including MEX, the Expressway’s traffic volume hit a historical average daily traffic high of 172,433 vehicles for the first six months of 2024 (+6% y-o-y). This, coupled with the alleviation of capacity constraints at the Salak South toll stop and robust development activity along the alignment, anchors the Expressway’s and MEX Capital’s strong business and financial prospects and, accordingly, the positive rating outlook.

The uncertainty over regulatory reforms noted in the last review remains, with restructurings favouring extensions in concession agreements (CA) in lieu of government compensation payments observed. MESB’s dependence on government compensation payments – which made up a significant 38% of its FY Dec 2023 revenue – for non-revision of toll rates and the deferral of contracted rate hikes makes the Sukuk’s credit quality more susceptible to any CA reform. Should this occur, a refinancing exercise may be necessary to better match the highway’s altered cashflow profile to preserve the required cash flow coverage metrics commensurate with its current rating. We will continue to monitor ongoing highway sector developments and reassess the Sukuk’s rating for cash flow and credit quality impact as required. Under the terms of the Sukuk indentures, any amendments to the CA terms remain subject to sukukholders’ consent. 

During the review period, spending for MEX’s operational and maintenance upkeep stayed within transaction limits although management has indicated that upward cost revisions are needed. Whilst the transaction’s budgetary limits ensure discipline, the Expressway’s recently strong traffic affords the Concessionaire some flexibility to shoulder additional costs should the need arise.

Like other toll road concessionaires, MESB is inherently exposed to regulatory and single-project risks. Potential termination or expropriation of its concession is an event risk. Under such circumstances, the CA does not obligate the government to compensate MESB or its lenders.  


Analytical contacts
Chew Chiang Lim
(603) 3385 2516
chianglim@ram.com.my

Davinder Kaur Gill
(603) 3385 2525
davinder@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
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