MARC has reaffirmed the ratings of Puncak Niaga (M) Sdn Bhd’s (PNSB) ABBA serial bonds, MuCP/MuMTN and junior notes at AAID, MARC-1ID/AAID and A respectively. Concurrently, the negative outlook on the ratings has also been lifted. The ratings reflect amongst others the inherent unfaltering demand for treated water and the Federal Government’s proposed financial support in resolving the long outstanding trade receivables problem.

PNSB is the operator of 28 water treatment plants (WTPs) in the State of Selangor and Federal Territory. The company’s sale of bulk treated water to the State Government increased marginally to RM288.9 million for 1H2003 from RM286.3 million in 1H2002, attributed to higher production from the WTPs. The increased sale, however, did not translate into cash receipts, with the total receivable due from the State Government standing at RM1 billion at the same date.

The Federal Government recently confirmed that it will provide financial assistance of RM2.9 billion in connection with the privatization of the water supply system in Selangor and the Federal Territories of Kuala Lumpur and Putrajaya, of which RM1.335 billion is to settle receivables owed by Perbadanan Urus Air Selangor Bhd to three water treatment operators, namely PNSB, Syarikat Pengeluar Air Sungai Selangor Sdn Bhd and Konsortium ABASS. This funding will help to resolve substantially the receivables of the water treatment operators. The balance of RM2.9 billion financial assistance will be for the privatization. In connection with the privatization, the water tariff will be revised upwards every five years with the first tariff review in 2005. With this in place, the future concern of receivables of the water treatment operators will be mitigated.

Apart from the above, the Federal Government has requested the State Government to discuss with the three water treatment operators to consider a possible reduction in the Bulk Supply Rate (BSR) and fixed capacity charge of approximately 10%. Notwithstanding a reduction, the cash flow of PNSB remains robust.

On 23 October 2003, PNSB and its O&M sub-contractor, CGE Utilities, have mutually agreed to shorten the remaining tenure of the sub-contract, to expire on 31 December 2004 (instead of December 2020). After that date, PNSB will directly assume the operation and maintenance function, supported by its own experienced employees. Going forward, PNSB is expected to improve its margin further.

PNSB’s operating profit margin for the year ended 31 December 2002 hovered above 50%, for the second consecutive year, helping to prop up pre-tax profit to RM180 million, despite an increase in financing costs. And with much of the profits retained towards enlarging shareholders’ funds, PNSB’s capital position continued to strengthen against declining debt obligations.