MRCB ... Aug12

MRCB which owns and operates the EDL in JB has had over rm1 billion of debt notes issued to fund the 8.1 km EDL downgraded by RAM. The downgrade came because MRCB Southern Link is seen likely to default on rm1 billion senior and junior sukuk due to the delay in tolling on the expressway. MRCB Southern has a high likelihood of defaulting on both the notes when interest payments are due on Dec 21, 2012. This is the second downgrade in Aug 2012.

RAM Rating Services downgraded the long-term ratings of MRCB Southern Link Bhd's RM845mil secured Senior Sukuk and RM199mil Junior Sukuk and there was a high likelihood of defaulting on both Sukuk on Dec 21, 2012. Malaysian Resources Corporation Bhd, the ultimate project sponsor, does not intend to fund any shortfall in meeting the debt obligations.In the meantime, the implementation of the government's short- and long-term plans to resolve the non-tolling of EDL remains uncertain. Finally, the negative Rating Watch indicates that the ratings could come under further downward pressure in the very near-term, if neither the short- nor long-term solution can be implemented promptly.

Issues ranging from the location of the toll Plazas, to toll charges and the date to start collecting toll have delayed start of tolling on the expressway. Expecting MRCB to incur operating cost of rm7 million a month which would lead to rm30 million to rm40 million operating losses for EDL in the fiscal year ending Dec 31.

The main reason for the downgrade ratings was the non tolling of the highway. MRCB is in talks with the government to resolve the issue and in the meantime the government has passed an interium resolution to bear the operational costs of the project while wait for the final decision.

MRCB has yet to receive any compensation from the government as part of the temporary measures as the interium resolution still needs to be approved by the Cabinet. However MRCB’s CEO said that MRCB Southern Link would have been able to meet its debt obligations had the management not made a rm40 million payment to the contractors, a related company to MRCB group.

The consolidated cash holdings of MRCB Southern Link stood at rm21 million as at end July 2012.

In April 2012, MRCB chairman Tan Sri Azlan said the group was open to options for its EDL, including the sale of the highway.

The EPF is the controlling shareholder of MRCB with 42.2% stake.