National debt will worsen if govt buys 4 highways, says rating agency

KUALA LUMPUR: RAM Rating Services Berhad (RAM Rating) said today national debt will worsen if the government proceeds to acquire four toll concessionaires as this was not budgeted for earlier.

“Nevertheless, RAM expects the government to be cautious in raising debt for this purpose, given its commitment to long-term fiscal consolidation,” said RAM Rating’s head of sovereign ratings Esther Lai in a statement today.

Lai also said the proposed acquisitions will have to carefully balance Malaysia’s limited fiscal space, which is underscored by its elevated effective debt level, estimated at 65.7% of GDP as of late last year.

The government announced earlier this week that it is in talks with Gamuda Bhd to negotiate the acquisition of Lebuhraya Damansara Puchong (LDP), Sistem Penyuraian Trafik KL Barat (SPRINT), Lebuhraya Shah Alam (Kesas) and the Smart Tunnel.

Gamuda is a major shareholder of the four highways.

RAM Rating also said the introduction of a congestion charge in place of the current toll regime for these highways was expected to complicate the toll abolishment issue for the highway sector.

“We expect the government to consider all options available to it on the execution of its plan to gradually abolish toll collection,” infrastructure and utilities rating co-head Davinder Kaur Gill said, reported Bernama.

The rating agency said they have factored in political consideration in this “fiscally onerous” matter.

The statement also explained that the toll-road sector represented one of the largest issuers in the domestic bond market, making up 12.7% of total outstanding corporate bonds (excluding quasi-government bonds), with an outstanding value of RM56.16 billion as at Feb 28.

Such bonds are largely held by local institutional investors and government-linked pension funds.

RAM Rating gave the example of settlement talks between the government and MRCB Southern Link Bhd in late 2018 to abolish toll collections for the Eastern Dispersal Link, which has set a precedence.

“Ultimately, timely and adequate payments in settlement of the concessionaire’s financial obligations are crucial towards ensuring the stability and accessibility to fund similar transactions via the debt capital market,” said Davinder.