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Monday, 9 August 2010

Malaysia : New sukuk issue to refinance DUKE debt

The sukuk issuance is needed as there's a mismatch between the asset and the company's financing requirements, says a source

The owner of the Duta-Ulu Kelang Expressway (DUKE) plans to restructure its RM780 million debt to rectify its funding-concession mismatch, and has approached Danajamin Nasional Bhd to ensure the success of its new Islamic bond.

"There is a need for a new sukuk issuance as there's a mismatch between the asset and the company's financing requirements," said a source familiar with the latest proposed issuance.Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd (Kesturi) was given a 34-year concession to design, construct, operate and manage DUKE in August 2004. The company is wholly owned by Nuzen Corp Sdn Bhd, which in turn is 70 per cent held by Wira Kristal Sdn Bhd and 30 per cent by Malaysian Resources Corp Bhd. Under a debt restructuring exercise, Kesturi will issue a senior sukuk of up to RM780 million and a junior sukuk of up to RM50 million for a 17-year tenure.  Proceeds will be used to redeem an earlier sukuk issued in October 2005. Kesturi will also seek a Danajamin guarantee for the senior sukuk issuance, based on an Ekovest Bhd announcement to Bursa Malaysia two weeks ago.  However, Business Times has learnt that the guarantee is likely to come with conditions, including a top-up of funds by shareholders of the company.  When contacted by Business Times, Kesturi declined to comment on its proposed sukuk issuance or its debt restructuring exercise.  After consulting with its lead arranger CIMB Investment Bank Bhd, a Kesturi spokesperson said it was unable to provide information as the restructuring was in the final stages and would be firmed up within a month or so.  Kesturi's sukuk issuance five years ago was also RM780 million, for a 13-year tenure to finance the construction of DUKE.  The amortisation of this sukuk is spread over nine years, with the first sukuk redemption of RM50 million due this October.  Although a proposed issuance date for the new sukuk is still being firmed up, the company is likely to raise funds soon.  A Malaysian Rating Corp Bhd (MARC) report issued in January said the company's management had admitted that slower traffic would mean a greater risk of not meeting debt conditions and repayments.  The report also said that toll revenues were expected to be insufficient to cover Kesturi's April 2010 profit payment although a shortfall was likely to be funded using its finance service reserve account maintained under the sukuk.  DUKE, which saw its first phase completed in December 2008, opened fully last May, slightly behind its original schedule. (Business Times)

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