MARC has reaffirmed Aliran Ihsan Resources Berhad’s (AIRB) RM56.9 million Redeemable Convertible Unsecured Loan Stocks (RCULS) rating of A with a Developing Outlook. The rating was reaffirmed based on the strong operational and consolidated financial performance as well as strong growth in water demand in the state of Johor.

AIRB was the vehicle established to undertake the restructuring scheme (the Scheme) of RNC Corporation Berhad, a PN4 condition company. The Scheme which was completed in November of 2004 saw AIRB venturing into the water business and assuming the listing status of RNC in March 2005.

AIRB’s wholly owned subsidiary, Southern Water Corporation Sdn Bhd (SWC) and two other associate companies, namely Equiventures Sdn Bhd (ESB) and Strategi Tegas Sdn Bhd (STSB), are principally involved in the bulk supply of water. Currently, SWC operates and maintains 14 water treatment plants (WTP) while ESB maintains two WTPs in Johor. In return, both concessionaires will receive fixed monthly payments and bulk sale supply payments for the sale of treated water.

The Developing Outlook reflects uncertainties posed by anticipated reforms in the water industry, and potential changes in the present structure of water concessions. The Johor State Government (JSG) had previously signalled the possibility of creating a special purpose vehicle to acquire the concessions of SWC and ESB. The unresolved status of the concessions and the lack of clarity surrounding negotiations with the JSG and the concessionaires heighten AIRB’s exposure to event risk in the intermediate term. Notwithstanding, MARC believes that the authorities will strive towards reform outcomes that enable concessionaires to meet their commitments going forward.

Revenue and profit before tax increased to RM57.12 million and RM35.82 million respectively, from RM34.61 million and RM1.73 million, in FY2005. However, the improvements were mainly due to the one-off debt restructuring exercise expenses incurred prior year amounting to RM4.9 million and that the results for FY2005 were only for seven months as compared to the 12 month results for FY2006.