Run Holding SPV Bhd - 2009

MARC has affirmed its MARC-1/A+ ratings on RUN Holding SPV Bhd’s (RUN SPV) First Series of RM200 million under its RM500 million Commercial Papers/Medium Term Notes Programme (the notes) and maintained the developing outlook on the ratings. RUN SPV 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 RUNs. 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. To date, RM200 million has been issued and annual redemptions amounting RM60 million have taken place, respectively, leaving RM140 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 RUN SPV’s revenue account. 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 revenue account and the operating account respectively. Cash outflows for RUN SPV 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 RUN SPV’s estimated expenses for the tenure of the transaction and disbursements of these expenses are monitored by the security agent. RUN SPV has not incurred any taxes for the financial year ended March 31, 2009.

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 maintained its developing outlook on the rating in view of regulatory and operational uncertainties arising from the  restructuring  of  the  Selangor  state’s  water industry. 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. 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 Junior Notes A. As such, the RUNs carry the same rating as the Junior Notes A, which in turn, reflects the notching down of the junior debts vis-à-vis the secured and senior debt at PNSB’s level. 

For financial year ended December 31, 2008 (FY2008), PNSB’s revenue declined by 24.4% to RM657 million due to lower revenue from construction segment. However, water revenue remains stable having increased by 6.1% due to increased water demand from Syabas as well as higher bulk supply rate (BSR) for the Sungai Selangor Water Supply Scheme Phase 2 (SSP2) and the 25 WTPs scheme. In line with lower revenue from construction business, PNSB’s profit before tax declined to RM90.5 million (FY2007: 96.3 million). Going forward, PNSB’s major financial obligations come from its debt repayment. Besides debt redemption from 2011 onwards, PNSB faces potential shortening of debt maturities arising from put options granted to holders of BaIDS and A Notes in 2010 and 2011, respectively.

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