Titisan Modal (M) Sdn Bhd’s (“TMSB”) RM738.0 million Fixed Rate Serial Bonds (“FRSB”) is assigned a long term rating with support of AA+(s).  The FRSB was previously assigned a stand alone long term rating of A+.  A Letter of Support dated 3 August 2006 was provided by the State Government of Selangor (“SSG”) for the FRSB.  In the Letter of Support, the SSG shall at all times in the future ensure that TMSB is in a position to meet (and do meet on a full and timely basis) its requirement under the sinking fund.

In March 2006, MARC assigned a long term rating of A+ to TMSB’s RM738.0 million FRSB. The rating is a reflection of the water industry in the state 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 FRSB. Nevertheless, the rating is moderated as the FRSB’s source of repayment is via dividends up streamed from Konsortium Abass Sdn Bhd (“KASB”), being the balance after providing for KASB’s operational expenses and existing borrowings.

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. The repayment for the FRSB is solely from the dividends declared and paid by KASB and a detailed analysis was 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.