RAM Ratings AAA/stable rating of Pengurusan Air SPV’s sukuk

KUALA LUMPUR: RAM Ratings has reaffirmed the AAA/Stable rating of Pengurusan Air SPV Bhd’s (PASB or the company) RM20 billion Islamic MTN Programme (2009/2039) (the Sukuk).

The reaffirmation of the rating of the Sukuk issued by PASB, which serves as the financing conduit of Pengurusan Aset Air Bhd (PAAB), is based on RAM’s view that the group continues to derive substantial financial flexibility from the Government of Malaysia (GoM).

This is pursuant to its strategic role of restructuring the water-services industry in Peninsular Malaysia and the Federal Territory of Labuan under the Water Services Industry Act 2006.

“Under the transaction structure, the sukuk holders’ recourse to PAAB is recognised by virtue of an irrevocable and unconditional Purchase Undertaking Deed provided by the group.

“As such, the rating of the Sukuk reflects PAAB’s credit risk, and both PAAB and PASB are thus viewed in aggregate from a credit perspective,” the ratings firm said.

According to RAM Ratings’ government-linked entity rating methodology, PAAB is deemed dependent on the government as it continues to rely on external funding for capex as well as other forms of support.

“This is underlined by the group’s additional RM20 billion Government-Guaranteed IMTN Programme (2011/2041) (GG Programme), a fiveyear moratorium on novated federal government loans, and the Government’s provision of current and prospective soft loans and equity injections.

“In financial year (FY) December 2016 and first half (1H) of FY December 2017, the Ministry of Finance had injected a respective RM70 million and RM80 million of equity into the group,” the ratings firm said.

RAM Ratings noted that PAAB as the national water asset company faces immense challenges in successfully executing the consolidation of water assets, given that some issues are beyond its control, as seen in the protracted progress of the exercise in certain states.

The ratings firm went on to note that to acquire state water assets and related liabilities as part of the restructuring exercise, PAAB would have to assume loans extended to the respective states by the Federal Government as well as drawdowns from its debt issues, including the Sukuk and the GG Programme.

“These debt issues will also finance capex for new water assets,” it said.

“Consequently, the group’s debt load is inherently hefty, standing at RM20.4 billion as at end-June 2017. Meanwhile, the group registered a gearing of 12.5 times in end-June 2017.”

RAM Ratings expected PAAB to continue to gear up in the coming years as it funds the water infrastructure of migrated states and takes over water assets and liabilities from states that have yet to migrate to the new system.