By halting or lowering toll rates, some concessions, particularly those in their infancy stage may find it hard to meet their debt obligations and this could trigger a downgrade in bond ratings, says OSK Research.

Prime Minister Datuk Seri Najib Tun Razak had last week announced that toll along the East-West Link Highway from the Salak Interchange to Taman Connaught is expected to be abolished as early as May.

He also made a bold call in asking toll concessions to retain, reduce or abolish the existing tolls without the government providing compensation.

'The construction of most tolls is financed largely by debt-corporate bonds.

'The coupon and repayment schedule for these bonds are usually structured to match the cash flow from the toll collection, which in turn, is dependent on the stipulated toll rates in the Concession Agreement (CA),' it said in a research note today.

OSK said the restructuring of the CAs may result in a negative perception of Malaysia's regulatory risks and make it more expensive to raise bonds for future projects.

The latest announcement also comes on the heels of the proposed privatisation of PLUS.

'We maintain a neutral call on the sector but highlight the potential regulatory risks involved,' OSK added.-- Bernama