MARC Ratings has affirmed its rating on toll concessionaire Lebuhraya DUKE Fasa 3 Sdn Bhd's (DUKE 3) RM3.64 billion Sukuk Wakalah at AA-IS with a stable outlook.

The rating incorporates the adequately structured sukuk repayment profile that accommodates the traffic ramp-up on Setiawangsa-Pantai Expressway (SPE). The back-ended financing structure  with the first principal repayment of RM5.0 million due in 2023 and its gradual step-up feature  would provide some headroom for DUKE 3 to build up traffic volume, generate cash and meet its financial obligations. The rating also considers SPE's well-positioned alignment within mature catchment areas. Being constructed under a concession agreement with the Malaysian government ending August 5, 2069, SPE will connect Middle Ring Road 2 at Wangsa Maju to Kerinchi Link adjoining Federal Highway. 

As of March 25, 2022, the project achieved 92.47% completion rate. Due to the extended impact of the pandemic, Lembaga Lebuhraya Malaysia (LLM) had approved DUKE 3's request for a second Extension of Time (EOT No. 2) to June 3, 2022, from October 31, 2021 under EOT No. 1. However, given the delays in utilities relocation and interface issues, the toll concessionaire has applied for another extension to December 23, 2022, which is pending approval from LLM.

We note that of the four sections of SPE, Section 4 (Wangsa Maju toll plaza) has commenced tolling since March 1, 2022. Given the completion delays on the other sections, we have revised our sensitivity analysis by incorporating a later tolling start date on the rest of the toll plazas to March 2023 (3-month delay) and June 2023 (6-month delay). Our sensitivity analysis reveals DUKE 3's finance service coverage ratio (FSCR) with cash would meet the covenanted 1.5x up until FY2036 under our rating case. The cash position is supported by the RM90 million that project sponsor Ekovest Berhad will place into the Operating Revenue Account (ORA) upon completion of the project.2