KUALA LUMPUR: The government's move to acquire the four tolled highways under Gamuda Bhd will likely excacerbate its debt burden, says RAM Ratings.

It said on Friday that from its sovereign’s budgetary perspective, the acquisition of the four tolled highways was not budgeted for and would likely exacerbate the government's debt burden. 

RAM’s ratings on Malaysia will consider the possibility of fiscally onerous political considerations. 

“Nevertheless, RAM expects the government to be cautious in raising debt for this purpose, given its commitment to long-term fiscal consolidation,” says Esther Lai, RAM’s head of sovereign ratings. 

Lai said the eventual outcome of the proposed acquisitions will have to carefully balance Malaysia’s limited fiscal space, based on its elevated effective debt level (estimated at 65.7% of GDP as at end-2018).

To recap, on Feb 23 the government proposed to acquire four highways under Gamuda Bhd and introduce a congestion charge to replace the current toll regime. However, this was expected to further complicate the issue of toll abolishment for the highway sector, it said. 

While details have yet to be announced on the regulatory, legal and financial implications of such a move, RAM Ratings believes the gvernment will strike a balance between its toll-abolition plans and the potential implications for the debt capital market. 

“The toll-road sector represents one of the earliest and largest issuers in the domestic bond market, making up 12.7% of total outstanding corporate bonds (excluding quasi-government bonds) with an outstanding value of RM56.16bil as at Feb 28, 2019. Such bonds are largely held by local institutional investors and government-linked pension funds.

“We expect the government to consider all options available to it on the execution of its plan to gradually abolish toll collection,” says Davinder Kaur Gill, co-head of RAM’s Infrastructure and Utilities Ratings.  

 

Davinder also pointed the conclusion of settlement talks between the government  and MRCB Southern Link Bhd in late 2018 vis-à-vis the cessation of toll collections for the Eastern Dispersal Link was a pivotal point for the sector’s various stakeholders.

“It sets the tone and serves as a benchmark deal for other toll-abolition cases in the future. Ultimately, timely and adequate payments in settlement of the concessionaire’s financial obligations are crucial towards ensuring the stability and accessibility to fund similar transactions via the debt capital market,” she said.

Past instances of restructuring for this sector had also considered the interests of all the parties involved, including lenders. 

The largest of these was under Projek Lebuhraya Usahasama Bhd in 2012. That had culminated in the refinancing of the concessionaire’s financial obligations through the issuance of a RM23.35bil sukuk and an RM11bil government guaranteed sukuk. 

“We do not preclude future restructuring talks to be based on mutual understanding between the concessionaires and the government; these may fall outside the ambit of the individual highway concession agreements. Even so, we expect the spirit of the concession agreements to be upheld when negotiating a final settlement,” she said. 

The four highways under Gamuda are Lebuhraya Damansara Puchong (LDP), Sistem Penyuraian Trafik KL Barat (SPRINT), Lebuhraya Shah Alam (KESAS), and the SMART Tunnel.

This network covers the Klang Valley and Selangor, catering to around one million vehicles daily. 

The government intends to introduce a toll-free window besides a 30% discount for commuters travelling outside the six-hour peak period. 

“That said, negotiations are still ongoing while details on timing, mode of implementation and funding information are still scant. RAM will closely monitor the relevant developments and take the appropriate action as and when required,” she said.