Gas District Cooling (Putrajaya) Sdn Bhd - 2014

MARC has affirmed its AAAID rating on Gas District Cooling (Putrajaya) Sdn Bhd’s (GDC Putrajaya) RM300 million Al-Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS) with a stable outlook. The affirmed rating incorporates the continued support extended by parent Putrajaya Holdings Sdn Bhd (PJH) and ultimate holding company Petroliam Nasional Berhad (PETRONAS) to GDC Putrajaya to meet its financial obligations. In addition, the long-term agreements with its parent and the government to offtake chilled water volume based on contracted volume and GDC Putrajaya’s position as the sole supplier of chilled water in Putrajaya are also key rating factors. MARC maintains a long-term credit rating of AAA/Stable on PJH and a public information rating of AAA/Stable on PETRONAS.

GDC Putrajaya owns six gas district cooling plants to supply chilled water to the government and commercial buildings in Putrajaya under several 13- to 22-year offtake agreements with the government and PJH. In return, GDC Putrajaya receives chilled water charges which comprise two components: demand charges, which are payable regardless of offtake volumes; and variable charges, which are based on the actual chilled water delivered. MARC views the demand charges to largely mitigate demand risk, providing a stable revenue stream. The variable charges, which currently account for 30.2% of the company’s revenue, are expected to increase in tandem with the anticipated rise in occupancy levels in Putrajaya. The expected completion of about 4.8 million square feet of government building developments in Parcel F will further boost demand for chilled water.  
 
For the first half of 2014 (1H2014), the amount of actual chilled water delivered increased by 2.2% on an annualised basis to 90.8 million refrigeration tonnage hours (RTh) due to stronger demand from the offtakers of Plant 1 and Plant 2. As Plant 1’s load has approached its optimum level, GDC Putrajaya plans to embark on a RM40 million expansion project in 2015 that will increase Plant 1’s capacity by 10,000 RT and build new chilled water pipes for Parcel F. GDC Putrajaya’s plant available capacity fell short of the contracted capacity by 18.2% in 1H2014 (2013: 31.2%) due to unscheduled outages for plant maintenance and repairs. However, no disruption of chilled water supply occurred as the maintenance works were mainly carried out during non-peak hours.

GDC Putrajaya’s revenue from the sale of chilled water in 1H2014 increased on an annualised basis by 10.1%, after the upward adjustment on chilled water charges as per the offtake agreement. Although the revision has helped increase the company’s operating margin to 19.0% (2013: 12.6%), margins would come under pressure in line with government natural gas price subsidy rationalisation and in the absence of a fuel cost pass-through mechanism. MARC understands GDC Putrajaya is still in the midst of seeking offtakers’ approval to restructure the chilled water tariffs to enable transferring of any increase in natural gas prices to the offtakers. MARC takes cognizance of GDC’s success to allow for the pass-through of additional utility costs to PJH under a new supplemental agreement effective from January 1, 2014.

GDC Putrajaya recorded lower cash flow from operations (CFO) of RM10.2 million in 1H2014 (1H2013: RM21.3 million) mainly due to the increase in trade receivables (1H2014: RM38.1 million; 2013: RM19.6 million). After meeting its scheduled principal repayment of RM50 million on December 4, 2014, GDC Putrajaya’s next principal repayment of RM50 million will be in December 2017. While this gives the company ample time for the build-up of cash reserves, GDC Putrajaya could also rely on financial support from its direct and/or indirect shareholders should there be any shortfall in debt service. PJH has demonstrated support by injecting RM44.2 million via shareholder advances to meet the RM50 million principal redemption of Tranche 3 BaIDS in December 2009. Additional comfort is drawn from the shareholding maintenance covenant requiring PETRONAS to maintain its indirect ownership in GDC Putrajaya throughout the tenure of the BaIDS.

The stable outlook is underpinned by MARC’s expectation that the immediate and/or ultimate parent companies PJH and/or PETRONAS will continue to offer GDC Putrajaya financial support in relation to the BaIDS debt obligations. A material change in the support assumption will result in a revision of GDC Putrajaya’s rating.

Major Rating Factors

Strengths

• Sole supplier of chilled water in Putrajaya;
• Contracted demand charges cover fixed operating and financing costs; and
• Strong credit profile of offtakers.

Challenges/Risks

• Absence of fuel cost pass-through mechanism in the offtake agreements.