Friday, Oct 27, 2000
MARC has assigned a rating of AAID to Puncak Niaga (M) Sdn Bhd’s (PNSB) ABBA serial bonds and MARC-1/AAID to its MuCP/MTN programme. Proceeds from the new debt offering will be substantially utilized to refinance PNSB’s existing debts including the RM800 million revolving underwritten facility (RUF) due in 2002. MARC had re-affirmed the RUF rating of MARC-2 in March 2000. Upon redemption of the RUF, MARC will withdraw its rating on the corresponding notes. PNSB’s revised short-term rating of MARC-1 and its long-term rating of AAID recognise the improvements to both PNSB’s business and financial risk profile. The ratings are supported by strong demand fundamentals for treated water produced by the company, favourable project risk allocations achieved in its concession structure and successful operation of Sungai Selangor Phase 2 (SSP2) Stage I New Facilities to date. Although PNSB is expected to incur additional indebtedness as a result of the new debt issue, MARC expects this to be well tolerated in the context of the company’s strong cash flow and robust operating profitability.
Industry fundamentals remain strong. Production level surpassed the minimum take-or-pay quantity set by the state government as a result of strong demand for water. Operation and maintenance work in respect of Stage I of SSP2 since commercial operations in August 1998 has been satisfactory. Despite the slight deterioration of raw water quality in 1999 compared to 1998, the quality of treated water was within the treating capability of PNSB whilst not compromising on the standard set by the Ministry of Health.
MARC views the construction risk for the balance of the construction works under Stage II to be negligible. To date, the overall progress is 98%. The remaining works consist mainly of setting to works, testing and commissioning and are scheduled for completion by end of 2000. Commercial operation of Stage II is now scheduled to commence in January 2001 under a supplementary agreement concluded with the government arising from the accelerated construction. MARC believes that PNSB will be strongly motivated to ensure that SSP2 Stage II is completed on time in expectation of the strong cash flow generation.
The new debt issues will see PNSB’s proforma debt to equity increasing to 2.60x in FY2000 before declining to 0.02x by FY2010. Although net debt of the company will remain high on an absolute basis, MARC views the debt-reduction capacity of PNSB as significant. MARC expects the company to maintain credit measures appropriate for its current rating category, which include funds from operations (FFO) gross interest coverage of more than 3.0x and a debt service coverage ratio (DSCR) of more than 2.0x over the tenure of the issue. Completion of SSP2 Stage II by December 2000 coupled with the scheduled bulk supply rate hike in January 2001 should improve PNSB’s cash flow and profitability substantially. Minimal planned capital expenditure and restrictive financial covenants should result in healthy accumulation of cash reserve over the tenure of the ABBA bonds and MuCP/MTN. Sensitivity analysis suggest that while cash for debt service declines against the base case, the resulting levels are sufficient to comfortably service debt obligations.
Currently the collection risk is considered low given that the sole off-taker is the Selangor State Government. The proposed privatization of the distribution of treated water may result in an increase in collection risk. MARC will continue to monitor developments in this regard and assess their implications, if any, on the credit profile of PNSB.
Industry fundamentals remain strong. Production level surpassed the minimum take-or-pay quantity set by the state government as a result of strong demand for water. Operation and maintenance work in respect of Stage I of SSP2 since commercial operations in August 1998 has been satisfactory. Despite the slight deterioration of raw water quality in 1999 compared to 1998, the quality of treated water was within the treating capability of PNSB whilst not compromising on the standard set by the Ministry of Health.
MARC views the construction risk for the balance of the construction works under Stage II to be negligible. To date, the overall progress is 98%. The remaining works consist mainly of setting to works, testing and commissioning and are scheduled for completion by end of 2000. Commercial operation of Stage II is now scheduled to commence in January 2001 under a supplementary agreement concluded with the government arising from the accelerated construction. MARC believes that PNSB will be strongly motivated to ensure that SSP2 Stage II is completed on time in expectation of the strong cash flow generation.
The new debt issues will see PNSB’s proforma debt to equity increasing to 2.60x in FY2000 before declining to 0.02x by FY2010. Although net debt of the company will remain high on an absolute basis, MARC views the debt-reduction capacity of PNSB as significant. MARC expects the company to maintain credit measures appropriate for its current rating category, which include funds from operations (FFO) gross interest coverage of more than 3.0x and a debt service coverage ratio (DSCR) of more than 2.0x over the tenure of the issue. Completion of SSP2 Stage II by December 2000 coupled with the scheduled bulk supply rate hike in January 2001 should improve PNSB’s cash flow and profitability substantially. Minimal planned capital expenditure and restrictive financial covenants should result in healthy accumulation of cash reserve over the tenure of the ABBA bonds and MuCP/MTN. Sensitivity analysis suggest that while cash for debt service declines against the base case, the resulting levels are sufficient to comfortably service debt obligations.
Currently the collection risk is considered low given that the sole off-taker is the Selangor State Government. The proposed privatization of the distribution of treated water may result in an increase in collection risk. MARC will continue to monitor developments in this regard and assess their implications, if any, on the credit profile of PNSB.