MAHB’s credit profile remains at AAA despite klia2 delay

RAM Rating Services said the delay in the completion of klia2, the new low-cost carrier terminal (LCCT), will affect Malaysia Airports Holdings Bhd’s (MAHB) AAA credit profile.

The ratings agency released this statement on Wednesday, “the Group had announced in early May 2013 that the main contractor would be unable to complete klia2’s main terminal building as per the earlier expected completion date of 28 June 2013.”

MAHB had subsequently set 2 May 2014 for the commencement of klia2’s operations.

RAM understands that the new deadline takes into account the time required to obtain the certificate of completion and compliance as well as to complete the operational readiness and airport transfer process.

Barring further unforeseen hiccups, the Group should be able to meet the new deadline, given that klia2 is 91% complete.

Having clarified the issue, the delay underscores the construction risks to which MAHB is exposed.

In arriving at MAHB’s ratings, we have taken into account the RM 3.9 billion cost of the klia2 project. The Group has provided an assurance that there will not be any cost overrun due to the fixed-cost nature of the contract.

MAHB has also imposed charges for liquidated and ascertained damages of around RM6 million per month on the affected contractor.

Meanwhile, the loss of incremental retail revenue (from increased retail space in klia2 compared to the current LCCT) for this year will be offset by the savings of additional operating expenses required to maintain klia2’s larger terminal area.

More importantly, passenger numbers at both the current LCCT and the main terminal building of Kuala Lumpur International Airport continue to be fuelled by increased flights and the addition of routes by low-cost carrier (LCC) AirAsia Bhd and Malaysian Airline System Bhd (MAS).

MAS’s entry into the oneworld alliance in February 2013 and stronger demand for LCCs as well as the debut of new airlines are also expected to boost passenger traffic.

“Notwithstanding the delay in the completion of klia2, we envisage the financial impact on MAHB to be minimal as its operating performance would continue to be underpinned by healthy passenger volumes,” notes Kevin Lim, RAM’s Head of Consumer and Industrial Ratings.

MAHB’s RM3.10 billion Islamic Medium-Term Notes Programme (2010/2025) and RM1.0 billion Islamic Commercial Papers Programme (2010/2017), issued through wholly-owned funding conduit, Malaysia Airports Capital Berhad, are currently rated AAA (with a stable outlook) and P1, respectively.

MAHB is also rated gA2/Stable/gP1 and seaAAA/Stable/seaP1 on the global and ASEAN scale, respectively.

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