Puncak Niaga (M) Sdn Bhd - 2007

The ratings of Puncak Niaga (M) Sdn Bhd’s (“PNSB”) RM1.02 billion Bai Bithaman Ajil Islamic Debt Securities (“BaIDS”) and RM546.875 million Junior Notes A (“A Notes”) have been reaffirmed at AAID and A+ respectively. MARC has also affirmed PNSB’s RM435 million Nominal Value Redeemable Unsecured Bonds (“RUBs”) ratings at A+. The ratings carry a stable outlook.

The ratings are supported by the continued strength of water demand fundamentals in the State of Selangor, Federal Territories of Kuala Lumpur and Putrajaya; strong revenue and profitability of PNSB; and cash flow certainty due to the structure of the bulk supply rate (“BSR”) and low offtaker credit risk of Syarikat Bekalan Air Selangor Sdn Bhd (“SYABAS”). Nevertheless, the rating is constrained by its moderate capital structure and potentially heavy debt maturities in certain years.

PNSB holds four concessions awarded by the State Government of Selangor (“SSG”) covering a total of 29 water treatment plants (“WTP”). The first concession awarded to PNSB involves the operation, maintenance, management, rehabilitation and refurbishment of 26 existing WTPs in Selangor and Federal Territory of Kuala Lumpur. PNSB is also the concession holder for the Sungai Selangor Water Supply Scheme Phase 2 WTP and the Wangsa Maju WTP which are essentially build, operate and transfer (“BOT”) concessions. The latest addition to PNSB’s portfolio of concession is the Sungai Lolo WTP concession which commenced on December 1, 2006 and expires in December 2034.

PNSB continues to maintain a strong financial profile. In FY2006, revenue grew by 13.11% year-on-year on account of construction revenue contributed by a turnkey water project and a 3.41% increase in bulk water sales to RM557.69 million. Profit before tax, however, declined by 12.11% to RM164.0 million in FYE2006 largely due to higher operating and maintenance, and finance costs. Notwithstanding, operating profit before interest and tax (“OPBIT”) margin was maintained above 40% reflecting the structure of water tariffs and the minimum take-or-pay water volumes. Revenue from bulk water sales constituted 77% of PNSB’s revenue in FY2006. Cash flow protection measures continue to be moderately strong, as reflected in a 8.01 times debt service cover ratio in FY2006.

The stable rating outlook reflects MARC’s expectations that PNSB will maintain sufficiently robust credit protection measures in the near to intermediate term on account of its predictable cash flows and supportive water tariff structure.

Major Rating Factors

Strengths

• Essential nature of water supply services;
• Strong revenue and profitability; and
• Certainty of cashflows.

Challenges/Risks

• Potential shortening of debt maturities arising from put options granted to holders of BaIDS and A Notes; and
• Uncertainty in relation to the restructuring of the water industry.