PETALING JAYA: The tolled–expressway sector accounted for around 15% of all outstanding corporate debt issues in the Malaysian market as at mid-August 2015. Bonds and sukuk issued by the sector, meanwhile, added up to RM54bil, of which RM49bil remained outstanding as at the same date, according to a RAM Ratings report.
The preference for Islamic-based transactions is highlighted by the fact that 70% of all sector-related issues comprised sukuk as at mid-August 2015.
“We expect sukuk to remain dominant as Malaysia accounts for US$173.8bil of the world’s sukuk which translates into 56% of total outstanding sukuk as at end-June 2015,” said RAM Ratings.
In the past, 28 expressways had been completed and were in operation by end-2013. These projects were funded by various methods, including government grants, syndicated term loans from financial institutions and bonds/sukuk raised through the domestic debt capital market.
While the ratings agency expects these sources to remain invested in financing new highway concessions, risk appetites for financial institutions have generally quelled following the global financial crisis in 2008.
“The funding landscape for project financing, particularly those with lengthy concession tenures and stretched payback periods will continue to evolve as the tighter Basel III regulations work their way into our domestic financial institutions,” said Davinder Kaur Gill, co-head of Infrastructure and Utilities Ratings.
The 2014/5 annual budget and the more recent 11th Malaysian Plan reiterated the Government’s commitment to improving the national road infrastructure by the construction of four highways in Peninsular Malaysia stretching over 400 km as well as the 1,663km Pan Borneo Highway.
Interestingly, the Pan-Borneo Highway will be toll-free, marking a departure from the conventional “user pays” model commonly employed in Malaysia.
“While details are still fluid, the annuity or availability-based payment model for toll concessions may make its mark on Malaysian shores,” said RAM Ratings.
The current climate in the toll sector remains active with more than 10 concessions to be awarded out. Davinder said that this presented an opportunity for the introduction of innovative financing structures from the debt capital market.
According to RAM Ratings, the project viability and debt-repayment capacity of all expressway projects ultimately depend on traffic projections and the highway’s alignment.
“We have a positive view of the availability of support loans and interest subsidies from the Government, which help to diversify funding sources and reduce reliance on the private sector, especially for projects with a strong socio-economic agenda vis-à-vis spurring development and economic activity along their alignments and in the surrounding areas,” said RAM Ratings.
