Friday, Apr 07, 2000
MARC has affirmed the rating of MARC - 2 on Puncak Niaga (M) Sdn Bhd’s (PNSB) Revolving Underwritten Facility (RUF) with term loan conversion. The rating is supported by sustained demand for water with production of treated water surpassing the minimum take-or-pay quantity that was set by the government; low off-taker risk; satisfactory operation of the existing water treatment facilities under Stage I of the Sungai Selangor Water Supply Scheme Phase 2 (SSP2); and satisfactory progress achieved in respect of construction works for the second stage of SSP2. The rating is moderated by the accelerated construction of Distribution Supply System Phase 2 (DSS2), which is currently financed from PNSB’s internal cash flow. PNSB has plans to put in place an external financing package specifically for DSS2. The off-taker risk profile for PNSB may also change should the privatization of the Jabatan Bekalan Air Selangor (JBAS) materialise.
PNSB has been able to produce treated water, which meets the required standards and minimum designated quantities set by the government. Stage I of SSP2, which operation and maintenance work is currently being undertaken by PNSB’s own personnel, began satisfactory commercial operations in July 1998. PNSB’s personnel comprise mainly ex-employees of the Selangor Waterworks Department, many of whom are able to draw on their experience from the operation and maintenance of the existing facilities to operate the newly completed Stage I of the SSP2. Despite the slight deterioration of raw water quality in 1999 compared to 1998, the quality of the treated water was within the treating capability of PNSB whilst not compromising on the standard set by the Ministry of Health.
Stage I of the SSP2 was completed on time and within budget. During the year under review, construction of Stage II is essentially on schedule with 87% of works completed against planned 83%. Commercial operation of Stage II has been brought forward by one year to January 2001 under a supplementary agreement concluded with the government.
The contract for DSS2 is executed on a deferred payment basis with payment for the work spread over five equal instalments beginning FY2001. Currently, PNSB is in the midst of finalizing an external financing package which terms, inter alia, include the matching of principal repayments with instalment receipts from the government.
PNSB’s cash flow from operations after capital expenditure is projected to be in deficit for FY2000. MARC believes that this deficit is a result of the unanticipated acceleration of the construction on DSS2. Drawing on PNSB’s internal funds to finance DSS2 has somewhat strained PNSB’s cash flow. Nevertheless, the deficit is believed to be temporary as the commissioning of Stage II in January 2001 coupled with the scheduled bulk supply rate hike should result in substantial improvement to cash flow from operations as well as profitability. Drawdown of the new financing will also positively impact the company’s cash flows. In addition, its holding company, Puncak Niaga Holdings Berhad has on 28 January 2000, submitted a Rights Issue Proposal to the Securities Commission. The proceeds of the Rights Issue estimated at RM91 million would be channelled to PNSB for its working capital requirement. Operating profit margin, interest and debt coverage ratios are projected to strengthen over the remaining tenure of the RUF. PNSB’s cash flow is resilient as demonstrated by its ability to withstand a simulated worsening of its account receivables and lower than projected production/sales volume. Under these adverse scenarios, PNSB will still be able to maintain an average debt service cover ratio of 1.4 times during the tenure of the facility.
PNSB has been able to produce treated water, which meets the required standards and minimum designated quantities set by the government. Stage I of SSP2, which operation and maintenance work is currently being undertaken by PNSB’s own personnel, began satisfactory commercial operations in July 1998. PNSB’s personnel comprise mainly ex-employees of the Selangor Waterworks Department, many of whom are able to draw on their experience from the operation and maintenance of the existing facilities to operate the newly completed Stage I of the SSP2. Despite the slight deterioration of raw water quality in 1999 compared to 1998, the quality of the treated water was within the treating capability of PNSB whilst not compromising on the standard set by the Ministry of Health.
Stage I of the SSP2 was completed on time and within budget. During the year under review, construction of Stage II is essentially on schedule with 87% of works completed against planned 83%. Commercial operation of Stage II has been brought forward by one year to January 2001 under a supplementary agreement concluded with the government.
The contract for DSS2 is executed on a deferred payment basis with payment for the work spread over five equal instalments beginning FY2001. Currently, PNSB is in the midst of finalizing an external financing package which terms, inter alia, include the matching of principal repayments with instalment receipts from the government.
PNSB’s cash flow from operations after capital expenditure is projected to be in deficit for FY2000. MARC believes that this deficit is a result of the unanticipated acceleration of the construction on DSS2. Drawing on PNSB’s internal funds to finance DSS2 has somewhat strained PNSB’s cash flow. Nevertheless, the deficit is believed to be temporary as the commissioning of Stage II in January 2001 coupled with the scheduled bulk supply rate hike should result in substantial improvement to cash flow from operations as well as profitability. Drawdown of the new financing will also positively impact the company’s cash flows. In addition, its holding company, Puncak Niaga Holdings Berhad has on 28 January 2000, submitted a Rights Issue Proposal to the Securities Commission. The proceeds of the Rights Issue estimated at RM91 million would be channelled to PNSB for its working capital requirement. Operating profit margin, interest and debt coverage ratios are projected to strengthen over the remaining tenure of the RUF. PNSB’s cash flow is resilient as demonstrated by its ability to withstand a simulated worsening of its account receivables and lower than projected production/sales volume. Under these adverse scenarios, PNSB will still be able to maintain an average debt service cover ratio of 1.4 times during the tenure of the facility.