Gas District Cooling (Putrajaya) Sdn Bhd - 2008 / 2009

MARC has affirmed its AAAID long-term rating on Gas District Cooling (Putrajaya) Sdn Bhd’s (GDC Putrajaya) RM300 million Al-Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS). The rating carries a stable outlook. The rating reflects GDC Putrajaya’s position as the sole supplier of chilled water to all government premises in Putrajaya, the relatively low operating risk associated with the district cooling facilities, a 22-year offtake agreement with the Government of Malaysia (GOM) and the superior credit quality of its offtakers. The rating also reflects the significant level of financial support provided by GDC Putrajaya’s ultimate shareholder, the government-owned oil and gas conglomerate Petroliam Nasional Bhd (Petronas), by way of advances and capital contributions. The financial support from Petronas enables GDC Putrajaya’s continued compliance with its financial covenants under the BaIDS and mitigates its continuing weak financial performance.

GDC Putrajaya operates and maintains district cooling plants in Putrajaya, the Federal Administrative Capital of Malaysia. GDC Putrajaya became a wholly-owned subsidiary of Putrajaya Holdings Sdn Bhd (PJH), the master developer of Putrajaya, pursuant to a restructuring exercise on November 22, 2008. PJH is co-owned by KLCC (Holdings) Sdn Bhd (64.41%), Khazanah Nasional Bhd (15.59%) and Kumpulan Wang Amanah Negara (20.00%). MARC notes PJH’s outstanding debt ‘AAA’ on the basis of its strong shareholders namely Petronas via KLCC (Holdings) Sdn Bhd (KLCCH) and the government investment arm, Khazanah Nasional Bhd, as well as its robust business and financial profile, underpinned by stable and consistent rental collections from its sub-lessee, the GOM.

GDC Putrajaya operates four main district cooling plants, namely Plant 1, Plant 2, Wisma Putra plant and the Putrajaya International Convention Centre plant which supply chilled water to government premises and commercial buildings. The total contractual peak demand for the financial year ended March 31, 2008 (FY2008) has increased to 59,332 Refrigeration Tonnage (RT) (FY2007: 56,576 RT) with the addition of new commercial offtakers. Actual consumption growth from offtakers has been relatively subdued over the past five years, the overall actual consumption level by the offtakers has surpassed the budgeted consumption level. However, the load factor for the plants continues to be low since commencement of operations, and indications are that the plants will remain underutilised until the planned office development comes onstream in 2010.

Revenue growth was modest at 5.6%, recording revenue of RM97.3 million in FY2008 (FY2007: RM92.2 million). However, operating profit declined by 49.5% to RM3.8 million (FY2007: RM7.6 million) despite the higher revenue caused by higher depreciation and the outsourcing of plant operations and maintenance since January 2007. Pre-tax losses are continuing from last year, and have widened due to lower operating profit and finance costs. However, cash flow from operations (CFO) is positive with a net CFO of RM50.5 million (FY2007: RM55.3 million) and CFO interest coverage of 2.85 times (x). GDC Putrajaya is in compliance with the minimum required annual finance service coverage ratio of 1.1x and the debt equity ratio of 50:50.

Of current concern to MARC is the hike in gas prices from RM6.40 per million British thermal unit (mmBtu) to RM14.31 per mmBtu which came into effect on July 1, 2008. MARC believes this will have a significant negative impact on GDC Putrajaya’s profitability should the district cooling operator be unsuccessful in its request for an upward tariff revision to cover gas costs. MARC will monitor the progress of negotiations between GDC Putrajaya and the government on the revision of the chilled water tariff. Mitigating this concern somewhat is MARC’s belief that PJH will continue to support GDC Putrajaya financially should it become necessary.

The stable outlook reflects the structural protections under the BaIDS’ financial covenants and the expectation of adequate capital support from GDC Putrajaya’s shareholder which will continue to insulate BaIDS holders against uncertain cost recovery and cash flow implications.

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