Tuesday, Aug 29, 2006
MARC has assigned an AAAID(bg) rating on Viable Chip (M) Sdn Bhd’s (“VCSB”) RM50.0 Million nominal value of Bank Guaranteed Bai’ Bithaman Ajil Islamic Debt Securities (“BaIDS A”) and an A+ID rating on the company’s RM150.0 Million nominal value of Bai’ Bithaman Ajil Islamic Debt Securities (“BaIDS B”).
The rating is driven by the financial capability of Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (“SPLASH”) to upstream dividends to its shareholders and payment of interest on the loan stocks and loan stock redemption. These cashflows will form the repayment source of VCSB’s BaIDS Facility. Credit enhancements are provided via a bank guarantee (provided by Public Bank Bhd) for BaIDS A and VCSB’s shareholder’s undertaking to provide liquidity line to meet any shortfall in the cash available in the Designated Accounts to meet the financing obligations of VCSB.
VCSB is wholly owned by Kumpulan Perangsang Selangor Bhd (“KPSB”), which is 53.59% owned by Kumpulan Darul Ehsan Bhd (“KDEB”), which is in turn wholly owned by Menteri Besar Selangor (Incorporated). VCSB was established in January 2006 with the aim to undertake the fundraising of a total of RM200 million BaIDS issue and will be the owner of KPSB’s entire equity ownership (30%) involving 51,000,000 ordinary shares and 690,000 redeemable preference shares (RPS) in Syarikat Pengeluar Air Selangor Holdings Bhd (“SPLASH Holdings”). SPLASH Holdings relies on dividend income and other distributions received from its wholly-owned subsidiary SPLASH, which is an operator of water treatment plants in the state of Selangor. In return for the supply of the treated water, SPLASH is getting capacity and supply payments from Syarikat Bekalan Air Selangor Sdn Bhd (“SYABAS”).
Notwithstanding financial support from KPSB, the repayment source of the BaIDS will come from the dividend and other contribution by SPLASH. Hence, a detailed analysis is conducted on SPLASH to ascertain its ability in upstreaming the cashflows to VCSB. The risk of the actual cashflows from SPLASH being lower than what is projected will affect the repayment ability of VCSB. Reasons that could lead to the variation include lower actual earnings by SPLASH or stricter dividend distribution covenant on SPLASH’s existing bonds.
The operating margin of SPLASH is expected to be stable due to the take-or-pay provision in the privatization agreement and the cost pass through mechanism factored in the charges. As capacity charges are payable to SPLASH irregardless of the quantity of water SYABAS requests, SPLASH is partially insulated against water demand fluctuations. In addition, the absence of construction risks, proven track record of SPLASH’s operations and shareholders’ commitment in improving the company’s credit profile during periods of liquidity crunch depict the management’s credibility, operationally as well as financially, in maintaining SPLASH’s earnings. The timeliness of payments from SYABAS is also crucial to SPLASH’s cashflows to fund its working capital requirements. Credit risk of SYABAS (70% owned by Puncak Niaga Holdings Bhd and 30% owned by KDEB) is deemed to be satisfactory given the strong shareholders and its prompt payment track record thus far.
The rating is driven by the financial capability of Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (“SPLASH”) to upstream dividends to its shareholders and payment of interest on the loan stocks and loan stock redemption. These cashflows will form the repayment source of VCSB’s BaIDS Facility. Credit enhancements are provided via a bank guarantee (provided by Public Bank Bhd) for BaIDS A and VCSB’s shareholder’s undertaking to provide liquidity line to meet any shortfall in the cash available in the Designated Accounts to meet the financing obligations of VCSB.
VCSB is wholly owned by Kumpulan Perangsang Selangor Bhd (“KPSB”), which is 53.59% owned by Kumpulan Darul Ehsan Bhd (“KDEB”), which is in turn wholly owned by Menteri Besar Selangor (Incorporated). VCSB was established in January 2006 with the aim to undertake the fundraising of a total of RM200 million BaIDS issue and will be the owner of KPSB’s entire equity ownership (30%) involving 51,000,000 ordinary shares and 690,000 redeemable preference shares (RPS) in Syarikat Pengeluar Air Selangor Holdings Bhd (“SPLASH Holdings”). SPLASH Holdings relies on dividend income and other distributions received from its wholly-owned subsidiary SPLASH, which is an operator of water treatment plants in the state of Selangor. In return for the supply of the treated water, SPLASH is getting capacity and supply payments from Syarikat Bekalan Air Selangor Sdn Bhd (“SYABAS”).
Notwithstanding financial support from KPSB, the repayment source of the BaIDS will come from the dividend and other contribution by SPLASH. Hence, a detailed analysis is conducted on SPLASH to ascertain its ability in upstreaming the cashflows to VCSB. The risk of the actual cashflows from SPLASH being lower than what is projected will affect the repayment ability of VCSB. Reasons that could lead to the variation include lower actual earnings by SPLASH or stricter dividend distribution covenant on SPLASH’s existing bonds.
The operating margin of SPLASH is expected to be stable due to the take-or-pay provision in the privatization agreement and the cost pass through mechanism factored in the charges. As capacity charges are payable to SPLASH irregardless of the quantity of water SYABAS requests, SPLASH is partially insulated against water demand fluctuations. In addition, the absence of construction risks, proven track record of SPLASH’s operations and shareholders’ commitment in improving the company’s credit profile during periods of liquidity crunch depict the management’s credibility, operationally as well as financially, in maintaining SPLASH’s earnings. The timeliness of payments from SYABAS is also crucial to SPLASH’s cashflows to fund its working capital requirements. Credit risk of SYABAS (70% owned by Puncak Niaga Holdings Bhd and 30% owned by KDEB) is deemed to be satisfactory given the strong shareholders and its prompt payment track record thus far.