Thursday, Feb 06, 2003
The ratings of AA ID (Double AA Islamic Debt)/MARC-1ID for PNSB’s RM1.02 billion ABBA serial bonds and RM350 million MuCP/MTN programme have been reaffirmed. Accordingly, the A rating of the RM546.875 million junior notes has also been affirmed. The ratings are, however, placed on a negative outlook pending the resolution of the substantial and long outstanding trade receivables. The maintenance of the present rating, hence, is subject to PNSB’s negotiations with the respective parties on the privatization of the water distribution and resolution of the burgeoning collection problem.
The ratings reflect the monopolistic nature of the water industry, unfaltering demand fundamentals for treated water, continued favorable project risk allocations via its take-or-pay and some pass through clauses in the concession structure and satisfactory operating performance of its water treatment plants (WTP). Moderating the above strengths, however is the rising trade receivables due from Perbadanan Urus Air Selangor Bhd (PUAS) [formerly known as Jabatan Bekalan Air Selangor or JBAS].
Industry fundamentals remain strong with the overall utilization rate of the WTPs managed by PNSB reaching 100.4% for the first nine months of FY2002. The overall production level in FY2001 continues to surpass the minimum take-or-pay quantity set by the state government. The protection accorded by the concession agreements continues to shield the company from the effect of reduced demand for treated water, hence providing stability to PNSB’s cash flow. Inflation risk is mitigated through the indexation of the bulk supply rate to the consumer price index and major production cost.
Operation and maintenance risk is low with CGE Utilities (M) Sdn Bhd, a subsidiary of Vivendi Environnement managing the 26 water treatment facilities assisted by experienced personnel previously from JBAS. The new facilities (SSP2) are being operated and maintained by PNSB.
Off-taker risk continues to be low given that the sole off-taker is the Selangor State Government. Whilst default risk is deemed low, PNSB is currently saddled with over RM600 million debts due from PUAS which translated into approximately 14 months of outstanding receivables. Until the issue is resolved, collection problem remains a major concern.
Unaudited results for 3Q 2002 saw revenue increased marginally by 3.2% year-on-year to RM426.5 million, reflecting the yearly upward adjustment in the Bulk Supply Rate (BSR) and increase in production volume from its WTPs. Profitability continues to strengthen with operating profit before interest and tax (OPBIT) margin fetching over 50%. Despite the increase in interest expenses, cash flow interest coverage ratio strengthened to 3.3x from 1.6x in FY2001 largely due to the reduction in payments to the contractors. The accumulated earnings and shareholders’ advances helped to keep the gearing below 2.0x.
Sensitivity analyses suggest that the cash flow projections are able to withstand a delay in collection of receivables of up to 21 months to maintain the minimum debt service cover ratio (DSCR) of 1.25x required under the financial covenant. The resolution of the substantial and long outstanding trade receivables is dependent on the outcome of the negotiations for the water distribution privatization.
The ratings reflect the monopolistic nature of the water industry, unfaltering demand fundamentals for treated water, continued favorable project risk allocations via its take-or-pay and some pass through clauses in the concession structure and satisfactory operating performance of its water treatment plants (WTP). Moderating the above strengths, however is the rising trade receivables due from Perbadanan Urus Air Selangor Bhd (PUAS) [formerly known as Jabatan Bekalan Air Selangor or JBAS].
Industry fundamentals remain strong with the overall utilization rate of the WTPs managed by PNSB reaching 100.4% for the first nine months of FY2002. The overall production level in FY2001 continues to surpass the minimum take-or-pay quantity set by the state government. The protection accorded by the concession agreements continues to shield the company from the effect of reduced demand for treated water, hence providing stability to PNSB’s cash flow. Inflation risk is mitigated through the indexation of the bulk supply rate to the consumer price index and major production cost.
Operation and maintenance risk is low with CGE Utilities (M) Sdn Bhd, a subsidiary of Vivendi Environnement managing the 26 water treatment facilities assisted by experienced personnel previously from JBAS. The new facilities (SSP2) are being operated and maintained by PNSB.
Off-taker risk continues to be low given that the sole off-taker is the Selangor State Government. Whilst default risk is deemed low, PNSB is currently saddled with over RM600 million debts due from PUAS which translated into approximately 14 months of outstanding receivables. Until the issue is resolved, collection problem remains a major concern.
Unaudited results for 3Q 2002 saw revenue increased marginally by 3.2% year-on-year to RM426.5 million, reflecting the yearly upward adjustment in the Bulk Supply Rate (BSR) and increase in production volume from its WTPs. Profitability continues to strengthen with operating profit before interest and tax (OPBIT) margin fetching over 50%. Despite the increase in interest expenses, cash flow interest coverage ratio strengthened to 3.3x from 1.6x in FY2001 largely due to the reduction in payments to the contractors. The accumulated earnings and shareholders’ advances helped to keep the gearing below 2.0x.
Sensitivity analyses suggest that the cash flow projections are able to withstand a delay in collection of receivables of up to 21 months to maintain the minimum debt service cover ratio (DSCR) of 1.25x required under the financial covenant. The resolution of the substantial and long outstanding trade receivables is dependent on the outcome of the negotiations for the water distribution privatization.