MARC has assigned a rating of A+ with Stable Outlook to Puncak Niaga (M) Sdn Bhd’s (“PNSB”) RM435 million Nominal Value Redeemable Unsecured Bonds (“RUBs”). The rating is supported by the continued strength and bright outlook of the water supply services industry especially in the state of Selangor, increased revenue and profitability of PNSB, and improving cash flows to the company due to the more reliable bulk supply rate (“BSR’) and monthly payments from Syarikat Bekalan Air Selangor Sdn Bhd (“SYABAS”). Nevertheless, the rating is limited by the capital structure and cash flow projections which are dependant on several put and call options, as well as the exposure to the bunching of repayments in certain years during the tenure.

PNSB holds three concessions awarded by the Selangor State Government. The first concession, the Privatization Cum Concession Agreement (“PCCA”) requires PNSB to take-over, operate, maintain, manage, rehabilitate and refurbish 27 existing water treatment plants (“WTPs”), which were previously under the management of Jabatan Bekalan Air Selangor (“JBAS”). The PCCA is for a period of 26 years and 1 month ending on 31 December 2020. However, one of the WTPs has been surrendered back to the State Government due to low and unreliable water source, leaving PNSB to operate only 26 WTPs under the PCCA. The second concession, the Construction Cum Operation Agreement (“CCOA”), requires PNSB to design, construct, finance, operate, maintain and manage a new water treatment plant (“WTP”) under the Selangor State Government’s Sungai Selangor Water Supply Scheme Phase 2 (“SSP2”). The most recent concession entered into by PNSB and the Selangor State Government is in respect of the Wangsa Maju WTP which had been designed, constructed, operated, maintained and managed by PNSB since 1998.

Since SYABAS took over the distribution of treated water to end-users in January 2005 from the Selangor Government (i.e. PUAS); PNSB has not had any collection problems. Since the privatisation of PUAS, SYABAS has been making prompt payments within the agreed credit term of 90 days. As at July 2006, receivables outstanding of more than four months are attributable to the old receivables owed by PUAS which will be fully settled by SYABAS in 10 yearly installments beginning December 2006.

PNSB’s revenue had increased by 12.3% to RM636.5 million in FYE2005 from RM566.8 million in FYE2004. However, the increase was due mainly to recognition of RM73.9 million in construction revenue and RM23.2 million gross dividend income during the year, whereas there was a decline in the revenue from the bulk supply of treated water, which decreased to RM539.3 million in FYE2005 from RM566.8 million in FYE2004. During FYE2005, PNSB’s production volume was 682.4 million cu m (or 1,870 MLD), compared with 685.43 million cu m (or 1,878, MLD) in FYE2004. The declining revenue was also due to the 8% discount on the BSR agreed upon by PNSB and SYABAS starting from July 2004.

Cash flow protection continued to be adequate during FYE2005, which had improved significantly starting in 2004 when PNSB received partial settlement from PUAS on the supply of treated water prior to 2005. PNSB’s debt leverage ratio has displayed a gradual improvement since 2000, declining from 1.9 times in FYE2000 to 1.2 times in FYE2005. As at FYE2005, PNSB had total debts outstanding of RM1,421.7 million compared with RM1,503.9 million at FYE2004 and RM1,613.6 million at FYE2003. The 6% per year reduction in total debts in FYE2004 and FYE2005 coupled with 3% per annum growth in retained earnings resulted in a lower debt leverage ratio in FYE2005.