Tuesday, Mar 30, 2004
MARC has reaffirmed the long-term rating of A ID (Single A Flat Islamic Debt) on SAJ Holdings Sdn Bhd’s (SAJH) RM680 million Al-Bai’ Bithaman Ajil Serial Bonds. The rating is supported by its proven operating 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, 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 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 jeopardise noteholders’ interests as the BPIMB loan is subordinated to the BaIDS in terms of payment structure and security package.
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 2002 and 37.0% as at October 2003. This was slightly higher than the previous 32% due to the adoption of a more accurate NRW measurement system which reflected the actual NRW levels in each district as opposed to NRW levels prior to 2002 which were measured using calculated estimations. The spot billing system shortened the collection period further to 31 days.
Despite the slight increase in revenue during FY2002, SAJH’s bottom line was weighed down by the recognition of finance costs which were previously capitalized. The management believes that the originally forecasted revenue and profit for FY2003 may not be achieved given the six-month delay in the implementation of the tariff review in year 2003 and the lower new tariff rates. Going forward, SAJH’s revenue growth will be mainly driven by the increasing industrial demand with an assumed average growth rate of 5% p.a.
SAJH’s borrowing capacity is constrained by the maximum debt limit of RM2.0 billion as stipulated in the Concession Agreement. Hence, the utility’s financial flexibility shall be drawn from the listing vehicle i.e. Ranhill Utilities Bhd (listed on the Main Board of the KLSE since June 2002) to tap the capital market to fund its capital expenditure programme. SAJH’s unencumbered assets stood at RM329.8 million as at June 2003.
The Semangar Water Treatment Plant and related distribution networks are expected to be completed by 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 jeopardise noteholders’ interests as the BPIMB loan is subordinated to the BaIDS in terms of payment structure and security package.
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 2002 and 37.0% as at October 2003. This was slightly higher than the previous 32% due to the adoption of a more accurate NRW measurement system which reflected the actual NRW levels in each district as opposed to NRW levels prior to 2002 which were measured using calculated estimations. The spot billing system shortened the collection period further to 31 days.
Despite the slight increase in revenue during FY2002, SAJH’s bottom line was weighed down by the recognition of finance costs which were previously capitalized. The management believes that the originally forecasted revenue and profit for FY2003 may not be achieved given the six-month delay in the implementation of the tariff review in year 2003 and the lower new tariff rates. Going forward, SAJH’s revenue growth will be mainly driven by the increasing industrial demand with an assumed average growth rate of 5% p.a.
SAJH’s borrowing capacity is constrained by the maximum debt limit of RM2.0 billion as stipulated in the Concession Agreement. Hence, the utility’s financial flexibility shall be drawn from the listing vehicle i.e. Ranhill Utilities Bhd (listed on the Main Board of the KLSE since June 2002) to tap the capital market to fund its capital expenditure programme. SAJH’s unencumbered assets stood at RM329.8 million as at June 2003.