Wednesday, Oct 20, 2004
MARC has assigned a long-term rating of AA- ID (Double A Minus Islamic Debt) to SAJ Holdings Sdn Bhd’s (SAJH) RM1.28 billion Bai Bithaman Ajil Serial Bonds which will be utilized to redeem the existing RM680 million BaIDS and to part finance SAJH’s capital expenditure. The rating is supported by its proven operating and financial track record; Johor state’s growing water demand; a tariff setting mechanism that provides for an agreed rate of return to the company and a fairly tight issue structure. The rating, however, is moderated by SAJH’s highly leveraged capital structure that reflects the significant utilization of debt to finance the company’s capital expenditure programme (but limited by the maximum debt limit of RM2.0 billion allowed under the Concession Agreement), and the high proportion of non-revenue water arising mainly from water leakages.
The Semangar Water Treatment Plant and related distribution networks are expected to be completed by end 2004 which would help the State to achieve self-sufficiency. The separate financing from Bank Pembangunan dan Infrastruktur Malaysia Berhad (BPIMB) for this project does not adversely affect noteholders’ interests as the rights of enforcement to recover the loan come from the assignment of raw water proceeds to Singapore and a separate take-out source that does not co-mingle with SAJH’s cash flows that are assigned to the bondholders. The security package for the said loan is also subordinated to the bonds.
The tariff setting mechanism is premised upon SAJH achieving a pre-determined internal rate of return. The State Government is obliged to gazette tariffs or pay compensation to SAJH in circumstances where the gazetted tariff is lower than the applicable Agreed Tariff or implementation has been delayed. This facilitates the recovery of fixed and variable operating costs and infrastructure capital spending.
Non-revenue water (NRW) was recorded at 37.5% in year 2003 and 36.7% as of July 2004. This was slightly higher than the previous 32% due to the adoption of a more accurate measurement of NRW with the use of District Metering Zones (DMZ) system. The spot billing system shortened the collection period further to 35.5 days.
The increase in revenue during FY2003 was contributed by the annual increase in water consumption and the effect of the tariff hike effective from 1 July 2003. However, the results fell short of that originally forecasted due to the delay in the implementation of the new tariff review from the original date of January 2003 to July 2003. Going forward, SAJH’s revenue growth is expected to be mainly driven by the increasing industrial demand which accounted for 57% of water revenue historically.
The maintenance of the Finance Payment Accounts (FPA) ensures that funds are gradually built up to meet debt service. The second level of protection is in the form of a six-monthly liquidity buffer maintained in the Finance Service Reserve Account (FSRA). Priority ranking has also been accorded to the BaIDS payment obligations under the payment waterfall.
SAJH’s financial flexibility is drawn from the listing vehicle i.e. Ranhill Utilities Bhd (listed on the Main Board of Bursa Malaysia since June 2002) to tap the capital market to fund its capital expenditure programme.
The Semangar Water Treatment Plant and related distribution networks are expected to be completed by end 2004 which would help the State to achieve self-sufficiency. The separate financing from Bank Pembangunan dan Infrastruktur Malaysia Berhad (BPIMB) for this project does not adversely affect noteholders’ interests as the rights of enforcement to recover the loan come from the assignment of raw water proceeds to Singapore and a separate take-out source that does not co-mingle with SAJH’s cash flows that are assigned to the bondholders. The security package for the said loan is also subordinated to the bonds.
The tariff setting mechanism is premised upon SAJH achieving a pre-determined internal rate of return. The State Government is obliged to gazette tariffs or pay compensation to SAJH in circumstances where the gazetted tariff is lower than the applicable Agreed Tariff or implementation has been delayed. This facilitates the recovery of fixed and variable operating costs and infrastructure capital spending.
Non-revenue water (NRW) was recorded at 37.5% in year 2003 and 36.7% as of July 2004. This was slightly higher than the previous 32% due to the adoption of a more accurate measurement of NRW with the use of District Metering Zones (DMZ) system. The spot billing system shortened the collection period further to 35.5 days.
The increase in revenue during FY2003 was contributed by the annual increase in water consumption and the effect of the tariff hike effective from 1 July 2003. However, the results fell short of that originally forecasted due to the delay in the implementation of the new tariff review from the original date of January 2003 to July 2003. Going forward, SAJH’s revenue growth is expected to be mainly driven by the increasing industrial demand which accounted for 57% of water revenue historically.
The maintenance of the Finance Payment Accounts (FPA) ensures that funds are gradually built up to meet debt service. The second level of protection is in the form of a six-monthly liquidity buffer maintained in the Finance Service Reserve Account (FSRA). Priority ranking has also been accorded to the BaIDS payment obligations under the payment waterfall.
SAJH’s financial flexibility is drawn from the listing vehicle i.e. Ranhill Utilities Bhd (listed on the Main Board of Bursa Malaysia since June 2002) to tap the capital market to fund its capital expenditure programme.