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MARC has affirmed its MARC-1/A+ ratings on RUN Holding SPV Bhd’s (RHSB) First Series of RM200.0 million under its RM500.0 million Commercial Papers (CPs) and Medium Term Notes (MTN) Programme (the Notes) and revised the outlook on the ratings to developing from stable. RHSB is a bankruptcy remote special purpose company incorporated solely for the purpose of issuing the Notes to purchase Redeemable Unconvertible Junior Notes (RUNs) issued by Puncak Niaga Holdings Bhd’s (PNHB) of equivalent nominal value. The ratings and outlook on ratings mirror that on the underlying securities. The ratings also incorporate structural protections which ensure that distributions to the RUNs are remitted into designated accounts and applied towards the debt-servicing of the Notes.
The Notes – comprising one CP issuance and four MTN issuances - were issued to match the redemption schedule of the RUNs with the final redemption of the Notes to be realised by the early redemption of the RUNs in 2011, via the exercise of a put option on the RUNs. Alternatively, the RUNs may also be redeemed in the event PNHB exercises its call option on the RUNs, also in 2011. The CP and MTN issuances of RM20.0 million each were redeemed as scheduled in November 2007 and 2008, respectively, leaving RM160.0 million of MTNs presently outstanding.
All debt servicing obligations under the Notes are met from all coupon payments and redemption amounts received from the RUNs, which are remitted directly into RHSB’s revenue account (RA). The security agent, UOB (Malaysia) Bhd (rated AA+ by MARC), as the sole signatory for the designated accounts, ensures that all distributions to the RUNs and all issue proceeds from the Notes are deposited into the RA and the operating account (OA), respectively. Cash outflows for RHSB comprise transaction expenses such as issuing costs and transaction fees as well as operating expenses and tax liabilities (if any). Part of the issuance proceeds has been allocated for RHSB’s estimated expenses for the tenure of the transaction and disbursements of these expenses are monitored by the security agent. RHSB has not incurred any taxes for the financial year ended March 31, 2008.
PNHB is an investment holding company principally engaged in the supply and distribution of treated water through its subsidiaries: wholly-owned Puncak Niaga (M) Sdn. Bhd. (PNSB) and 70%-owned Syarikat Bekalan Air Selangor Sdn. Bhd. (Syabas). MARC recently affirmed its A+ rating on the RUNs and revised its rating outlook to developing from stable in view of regulatory and operational uncertainties arising from the restructuring of the Selangor state’s water industry. PNSB is the concessionaire of 30 water treatment plants (WTP) in Selangor, Kuala Lumpur and Putrajaya. Syabas is PNSB’s sole offtaker of treated water from its treatment plants. PNHB’s RUNs are secured against PNSB’s RM546.9 million A Notes (A Notes). As such, the RUNs carry the same rating as the A Notes, which in turn, reflects the notching down of the junior debts vis-à-vis the secured and senior debt at PNSB’s level.
PNHB announced on February 20, 2009 that PNSB and Syabas had both rejected offers from the Selangor state government to take over their water assets and operations. For the financial year ended December 31, 2007 (FY2007), PNSB recorded 20.8% increase in revenue of RM869.4 million while operating profit before interest and tax (OPBIT) margin remains strong at 31.2%. During the financial year, PNSB generated free cash flow of RM255.5 million despite incurring high operating costs and capital expenditure requirements. Its debt service cover ratio continued to remain strong at 5.52 times. Meanwhile, PNSB maintains ample debt service reserves of RM301.76 million as at November 30, 2008 to meet its near-term debt service obligations.
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