MARC has upgraded the long term rating of Puncak Niaga Holdings Berhad’s (“PNHB”) RM546.875 million Redeemable Unconvertible Junior Notes (“RUN”) with detachable warrants from A to A+ with a stable outlook. The rating is similar to the rating of Puncak Niaga (M) Sdn Bhd’s Junior Notes A (“A Notes”), which has also been upgraded. The rating is a reflection of the perfected security interest of the RUN where it is secured on a one-to-one basis against the A Notes. Under the Issue Structure, debt service obligations of the A Notes match the debt service obligations of the RUN and payments will flow into an escrow account. The rating also reflects the notching down of the junior debts vis-à-vis the senior debts due to the existing senior and secured debts at the PNSB level ranking ahead of the junior debts in the event of liquidation.

PNHB is the holding company of PNSB, which currently holds three concessions awarded by the Selangor State Government covering a total of 28 water treatment plants (“WTP”). The first concession, the Privatization Cum Concession Agreement, requires PNSB to rehabilitate, operate, maintain and manage 26 WTPs scattered around Selangor and Kuala Lumpur; while the other two concessions requires PNSB to design, construct, operate, maintain and manage the Sungai Selangor Water Supply Scheme Phase 2 WTP and the Wangsa Maju WTP respectively. PNHB also owns 70% of Syarikat Bekalan Air Selangor Sdn Bhd (“SYABAS”), which has been granted a concession for a period of 30 years, commencing from 1 January 2005 whereby SYABAS has assumed all duties and functions of Perbadanan Urus Air Selangor (PUAS) in the area of water supply and distribution of water to the consumers within the State of Selangor and the Federal Territories of Kuala Lumpur and Putrajaya involving a population of 7.1 million and industrial and commercial users through 1.48 million consumer accounts.

On 19 October 2005, PNSB’s senior debt holders gave their consent to the company to extend the tenures of the senior RM1.02 billion Bai Bithaman Ajil Islamic Debt Securities (“BaIDS”) and allows the holders the opportunity to call for an early repayment under a Put Option granted to the holders by PNSB.

The extension of the tenures of the BaIDS places the A Notes holders and, therefore, the RUN holders in a better position in the form of a favourable cash flow position that would likely alleviate the liquidity risk of the RUN as compared against its liquidity risk in the previous structure of the BaIDS. If the Put Options on Series 3, 4, 5 and 6 of BaIDS are exercised in FY2007, FY2008, FY2009 and FY2010 respectively, PNHB’s debt service coverage ratio (‘DSCR”) is projected to be above the covenanted level of 1.25x with sufficient opening cash balance to redeem the RUN should the holders exercise their Put Options.

Under stressed operating conditions, the DSCR are expected to comfortably meet the minimum covenanted DSCR requirement. Underpinning the cash flow’s resilience is the considerable improvement in PNSB’s collections of monthly payments upon the privatization of PUAS to SYABAS, the resolution of old outstanding trade receivables owed by PUAS and the financial assistance provided by the Government. Complementing this exercise is the built-in rate adjustment mechanism within the concession agreements and the take-or-pay arrangement with SYABAS.

PNHB Group’s revenue substantially increased by 102% to RM1,145 million in FY2005 (FY2004: RM566.8 million).  The increase in the revenue was primarily due to the maiden revenue contribution from SYABAS which started its operation in January 2005.