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Tuesday, October 4, 2022

Launch Partners

ALR proposes RM5.5 billion SRI Sukuk program: Malaysia’s first highway Sukuk

Amanat Lebuhraya Rakyat (ALR) has proposed a RM5.5 billion (US$1.25 billion) sustainable senior Sukuk program. It has received preliminary ratings of ‘AAAIS’ and ‘AAA/Stable’ from Malaysian Rating Corporation (MARC) and RAM Ratings respectively. The proposed issuance would be the first highway sector sustainable and responsible investment Sukuk in the Malaysian market. The proposed Sukuk program is under ALR’s Sustainability Sukuk Framework.

ALR was established on the 13th December 2021 after the Malaysian cabinet greenlit the restructuring of the Shah Alam Expressway (KESAS), the Stormwater Management and Road Tunnel (SMART), the Western Kuala Lumpur Dispersal Link (SPRINT), and the Damansara–Puchong Highway (LDP) highways. Its shareholders proposed a takeover of the four highways for RM5.48 billion (1.25 billion) with the objective of returning the highways to the government without any extension period to the concessions in April 2022. Proceeds from the proposed issuance will be used to repay the debts backed by four wholly-owned concession companies corresponding to the highways.

The rating agencies are confident in ALR’s ability to generate cash flow. While the four highways experienced a combined annual average daily traffic decline of 29% from the 2019 level during 2020–21 during the COVID-19 pandemic period according to MARC, it projects traffic levels to rerun to pre-pandemic levels. According to RAM, LDP is expected to account for 47% of the revenue during the tenor of the proposed Sukuk, while KESAS, SPRINT and SMART will constitute a respective 23%, 26% and 4%.

The proposed Sukuk program features a call option, allowing the issuer to redeem outstanding Sukuk partially or fully before the end of its tenor. If ALR performs to expectations, the proposed Sukuk will be fully cash-backed by May 2033. Financial close is targeted to be on the 24th June 2022.

ALR launched a sustainability Sukuk framework under which the proposed Sukuk program will be issued. MARC confirmed that it is aligned with the Securities Commission Malaysia’s Sustainable and Responsible Investment Sukuk Framework. ALR’s sustainability strategy includes reducing emissions and climate change exposure. The rating agency confirmed that the framework achieves social outcomes in the form of direct welfare gains among highway users from toll rate savings and an expected shortening of the revised end dates of the concessions. It also contributes to indirect public welfare gains from the release of fiscal resources for potentially impactful public spending.

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