AZRB financial close for EKVE to signal start of construction

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KUCHING: Ahmah Zaki Resources Bhd (AZRB) has received approval from the Securities Commission to establish a RM1 billion sukuk programme for the East Klang Valley Expressway (EKVE) which is expected to be a draw down of RM606 million as it already has a RM635 million government soft loan.

The financial close for the EKVE is expected to be a positive catalyst as this signals that construction works on the RM1.6 billion highway can begin next year, a key driver of earnings.

To recap, Alliance Research Sdn Bhd (Alliance Research) noted that in February, AZRB inked the concession agreement (CA) for the EKVE worth RM1.55 billion. The concession period is for 50 years (including 3.5 years for construction).

The EKVE forms the final section of the KL Outer Ring Road (KLORR) which currently comprises of the LATAR Highway, Guthrie Corridor Expressway, ELITE Highway, South Klang Valley Expressway and SILK Expressway.

Although sukuk is for a nominal sum of up to RM1 billion, Alliance Research noted that it was unlikely that the entire sum will be drawn down.

“Management guided that the RM1.55 billion EKVE will be financed via a debt to equity ratio of 80:20, working out the debt portion to be RM1.24 billion.

“However, AZRB has already secured a RM635 million soft loan from the government. As such, the draw down from the sukuk to make up for the remaining debt portion is RM606 million,” it stated.

“We are positive on AZRB achieving financial closure for the EKVE as this signals that construction works can begin next year.”

The EKVE makes up 43 per cent of AZRB’s orderbook balance of RM3.6 billion.

Earnings should come in strongly once AZRB begins to recognise construction profits from the EKVE over the next 3.5 years.

Assuming the sukuk draw down of RM606 million, proforma net gearing will rise from 0.8 times to 3.6 times.

“Financial close for the EKVE is a positive catalyst as this signals that construction works on the RM1.6 billion highway can begin next year, a key driver of earnings.

Proforma net gearing would soar to over 3.6x but the EKVE debts are non-recourse.