Puncak Niaga Holdings Bhd - 2007

MARC has reaffirmed the A+ long term rating of Puncak Niaga Holdings Bhd’s (“PNHB”) RM546.875 million Redeemable Unconvertible Junior Notes (“RUN”) with detachable warrants. The rating outlook is stable.

The RUN are rated the same as its subsidiary, Puncak Niaga (M) Sdn Bhd’s (“PNSB”) Junior Notes A (“A Notes”) which are secured on a back-to-back basis against PNSB’s RM546.875 million A Notes. Debt service obligations of the A Notes exactly match the coupon and principal payments on the RUN which PNSB is obligated to deposit into a security account jointly controlled by PNHB and the issue’s trustee. The rating of ‘A+’ is two notches below the rating for PNSB’s direct, unsecured debt obligations on account of the relative proportion of secured and senior debt obligations in PNSB’s debt profile as well as the contractual position of the RUN vis-à-vis other debt obligations of PNSB. The coupon and principal payable on the A Notes are direct, unconditional and unsecured obligations of PNSB and rank pari passu with all other unsecured and unsubordinated obligations of PNSB. The stable rating outlook mirrors that of PNSB’s rated obligations and reflects MARC’s expectations that PNSB will continue to exhibit earnings resilience and strong credit protection measures.

PNHB owns 82.5% of the ordinary shares in PNSB, which currently 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 concessions is the Sungai Lolo WTP concession which commenced on December 1, 2006 and expires in December 2034.

PNHB’s other core subsidiary is its 70% owned Syarikat Bekalan Air Selangor Sdn Bhd (“SYABAS”), which has been granted a concession for a period of 30 years, commencing from January 1, 2005 in connection with the privatisation of water distribution within the State of Selangor and the Federal Territories of Kuala Lumpur and Putrajaya. SYABAS has an implied unsecured senior debt rating of AA-.

Ultimately, the rating of the RUN remains dependent on PNSB which generates the payment stream for the A Notes and the RUN. The ratings on PNSB continue to be supported by its strong financial performance and robust cash flow generation. 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.