[RAM] RAM Ratings reaffirms AAA(bg) rating of EKVE's sukuk

RAM Ratings has reaffirmed the AAA(bg)/Stable rating of EKVE Sdn Bhd’s (EKVE or the Company) Guaranteed Sukuk Murabahah Facility of up to RM1 bil in Nominal Value (the Sukuk). The rating reflects the respective irrevocable and unconditional guarantees on the Sukuk from AAA-rated Maybank Islamic Berhad and Bank Pembangunan Malaysia Berhad for tranche 1 and 2 issued under the programme respectively. The guarantees enhance the Sukuk’s credit profile beyond its standalone position.

We were informed that the Company was unable to meet profit and guarantee payments due on 29 July 2022. As the balances in its designated account balances stood at RM1.6 mil (as at end-June 2022), the Company bridged the shortfall in the Sukuk profit payments via a cash injection from its sole shareholder Ahmad Zaki Resources Berhad (AZRB). AZRB has secured loans to the tune of RM180 mil to support the Project's remaining construction cost and Sukuk obligations. However, the Company's quarterly guarantees fees remain unpaid and the Company is seeking the guarantors’ indulgence for an extension of time (EOT). Based on representations made to RAM by the Company, no Event of Default under the guarantees and/or Dissolution Event under the Sukuk has been declared to date despite all relevant parties having been informed of the delayed guarantee fee payments. Any such declaration could result in an accelerated repayment of all outstanding sukuk via the guarantees.

EKVE’s efforts to secure a new shareholder in the last year were not successful. Construction of the East Klang Valley Expressway (the Project or the Expressway) while having progressed (96.9% as at end-May 2022), was not completed within the latest EOT (fifth) which ended on 15 July 2022. On 27 June 2022, EKVE applied for a sixth EOT up to 12 July 2023, which has yet to be approved by the Malaysian Highway Authority. The most recent delays are attributable to the pandemic induced constraints, and to a larger extent, the redesign of the highway structure due to the protracted land acquisition process. Management expects the Expressway to be completed by end of 2022, with tolling to commence at the start of next year.

Including a yet to be drawn government support loan and further expected equity injections, EKVE’s liquidity is anticipated to stay extremely thin in the months leading up to the Expressway’s completion.

Under a 50-year concession agreement with the Government of Malaysia, EKVE holds the concession for the East Klang Valley Expressway – a 36.16 km closed-toll system which starts from Sungai Long in Kajang and ends at Ukay Perdana in Ampang.

AZRB, remains committed to financially backing the Project, evident from a completion guarantee and letter of undertaking from AZRB to see the Project through to completion. AZRB’s weakened financial profile over the past few years, however, may limit its capacity to extend support or provide the required equity capital. The mismatch in cash flows resulting from the extended delay in project completion suggests that refinancing and/or an additional financial injection is pivotal to ensure continued servicing of the Sukuk henceforth. 

As with most concession-related projects, EKVE is exposed to regulatory and single-project risks.


Analytical contacts
Jack Kwan
(603) 3385 2532
jack@ram.com.my

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