MARC has reaffirmed the long term rating of A on Puncak Niaga Holdings Berhad’s (“PNHB”) RM546.875 million Redeemable Unconvertible Junior Notes (“RUN”) with detachable warrants. The rating is similar to the rating of Puncak Niaga (M) Sdn Bhd’s Junior Notes A (“A Notes”), which has also been reaffirmed. The rating reaffirmation is a reflection of the perfected security interest of the RUN where it is secured on a one-to-one basis against the A Notes. Under the Issue Structure, debt service obligations of the A Notes match the debt service obligations of the RUN and payments will flow into an escrow account. The rating also reflects the notching down of the junior debt vis-à-vis the senior debts due to the existing of senior and secured debts ranking ahead of the junior debt in the event of liquidation.

PNHB is the holding company of PNSB, which currently holds three concessions awarded by the Selangor State Government covering a total of 28 water treatment plants (“WTP”). The first concession, the Privatization Cum Concession Agreement, requires PNSB to rehabilitate, operate, maintain and manage 26 WTPs scattered around Selangor and Kuala Lumpur; while the other two concessions requires PNSB to design, construct, operate, maintain and manage the Sungai Selangor Water Supply Scheme Phase 2 WTP and the Wangsa Maju WTP respectively.

On 19 October 2005, the PNSB’s senior debt holders gave their consent to the company to extend the tenures of the RM1.02 billion Bai Bithaman Ajil Islamic Debt Securities (“BaIDS”). The proposal to vary the existing principal terms and conditions allows the holders the opportunity to call for an early repayment under the Put Option granted to the holders by PNSB.

The extension of the tenures of the BaIDS would place the A Notes holders and therefore the RUN holders in a better position in the form of a favourable cash flow position that would likely alleviate the liquidity risk of the RUN as compared against its liquidity risk in the previous structure of the BaIDS. If the Put Options on Series 3, 4, 5 and 6 of BaIDS are exercised in FY2007, FY2008, FY2009 and FY2010 respectively, DSCR is projected to be 2.12x well above the covenanted level of 1.25x with sufficient opening cash balance to redeem the RUN should the holders exercise its Put Option.

Under stressed operating conditions, DSCR ratios would still comfortably meet the minimum DSCR requirement. Underpinning the cash flow’s resilience is the privatisation of PUAS to SYABAS whose operations and responsibilities have been taken over by SYABAS in FY2005 led to considerable improvement in PNSB’s collections from receivables and the resolution of old outstanding trade receivables owed by PUAS. Complementing this exercise is the built-in rate adjustment mechanism within the concession agreements and the take-or-pay arrangement with the new privatisation vehicle.