Tuesday, Apr 25, 2006
MARC has assigned a long term rating of A+ to Titisan Modal (M) Sdn Bhd’s (“TMSB”) proposed issuance of up to RM738.0 million Fixed Rate Serial Bonds (“FRSB”). The rating is a reflection of the water industry in the State of Selangor whereby the demand fundamentals for treated water is unwavering; satisfactory operating performance of the water treatment plant and the expected robust cash flow projections during the tenure of the proposed FRSB. Nevertheless, the rating is moderated as the proposed FRSB’s source of repayment will be via dividends upstreamed from Konsortium Abass Sdn Bhd (“KASB”), being the balance after providing for KASB’s operational expenses and existing borrowings. It is noted that the said borrowings are secured at KASB’s level and will be fully repaid earlier than the FRSB.
TMSB, which is 55% owned by Kumpulan Perangsang Selangor Berhad and 45% held by Operasi Murni Sdn Bhd, was incorporated to undertake the acquisition of the entire equity shareholdings of KASB, a water treatment plant (“WTP”) operator in the State of Selangor. Given that the repayment for the proposed FRSB will be solely from the dividends declared and paid by KASB, a detailed analysis is conducted on KASB to ascertain the ability of the company to upstream the dividends.
KASB was established to undertake the privatisation works for the Sungai Semenyih Water Supply Scheme under the Privatisation Cum Concession Agreement (“PCCA”) which was executed in 2000. The 30-year concession period requires KASB to supply 545 million litres per day of treated water to Syarikat Bekalan Air Selangor Sdn Bhd (“SYABAS”).
Operationally, KASB has shown consistent performance ever since the privatisation agreement producing on average more than 200 billion litres/year of treated water. In 2005, KASB produced 205.1 billion litres/year of treated water against the designated capacity of 198.9 billion/year required under the PCCA.
The increase in the annual production volume has contributed positively to the company’s revenue as evident from the year-on-year revenue growth. Operating margin has also been strong, a reflection of the company’s ability to pass through increases in chemical costs and electricity under the PCCA. As a result, this enabled KASB to maintain a stable operating margin, averaging at 20.0%, over the last four years.
Cash flow during the tenure of the facility is expected to be robust where the base case projections indicate adequate debt service coverage ratios (“DSCR”) depicting average and minimum DSCR of 3.44x and 2.07x respectively. Further stress analysis indicates the cashflow is sensitive towards lower water production levels as opposed to delays in payments from SYABAS and is able to withstand a reduction in production level of up to approximately 6% throughout the tenure of the facility before breaching the DSCR covenant of 1.25x.
TMSB, which is 55% owned by Kumpulan Perangsang Selangor Berhad and 45% held by Operasi Murni Sdn Bhd, was incorporated to undertake the acquisition of the entire equity shareholdings of KASB, a water treatment plant (“WTP”) operator in the State of Selangor. Given that the repayment for the proposed FRSB will be solely from the dividends declared and paid by KASB, a detailed analysis is conducted on KASB to ascertain the ability of the company to upstream the dividends.
KASB was established to undertake the privatisation works for the Sungai Semenyih Water Supply Scheme under the Privatisation Cum Concession Agreement (“PCCA”) which was executed in 2000. The 30-year concession period requires KASB to supply 545 million litres per day of treated water to Syarikat Bekalan Air Selangor Sdn Bhd (“SYABAS”).
Operationally, KASB has shown consistent performance ever since the privatisation agreement producing on average more than 200 billion litres/year of treated water. In 2005, KASB produced 205.1 billion litres/year of treated water against the designated capacity of 198.9 billion/year required under the PCCA.
The increase in the annual production volume has contributed positively to the company’s revenue as evident from the year-on-year revenue growth. Operating margin has also been strong, a reflection of the company’s ability to pass through increases in chemical costs and electricity under the PCCA. As a result, this enabled KASB to maintain a stable operating margin, averaging at 20.0%, over the last four years.
Cash flow during the tenure of the facility is expected to be robust where the base case projections indicate adequate debt service coverage ratios (“DSCR”) depicting average and minimum DSCR of 3.44x and 2.07x respectively. Further stress analysis indicates the cashflow is sensitive towards lower water production levels as opposed to delays in payments from SYABAS and is able to withstand a reduction in production level of up to approximately 6% throughout the tenure of the facility before breaching the DSCR covenant of 1.25x.