MARC has placed its AA-ID rating on SAJ Holdings Sdn Bhd’s (SAJH) RM1.28 billion Bai Bithaman Ajil Islamic Debt Securities (BaIDS) on MARCWatch Positive following the announced signing of a Master Agreement on March 11, 2009 by the federal government, Johor state government, Syarikat Air Johor Sdn Bhd (SAJSB), Ranhill Utilities Berhad (RUB), Pengurusan Aset Air Berhad (PAAB) and SAJH.  SAJH, a subsidiary of RUB, holds a 30-year concession commencing in March 2000 awarded by the Johor state government to supply treated water to consumers in the state. MARC’s last rating action on SAJH had been to change its rating outlook to developing from stable in January 2009 to reflect operational and regulatory uncertainties faced by the water concessionaire in light of the restructuring of the water sector.

MARC considers the recent development to be positive as it removes a substantial amount of uncertainty regarding the restructuring of the water sector and corresponding credit implications for SAJH’s rated debt. Under the terms of the Master Agreement, SAJH has agreed to transfer all of its water assets, including capital works, at one time book value and all corresponding liabilities including the RM1.28 billion BaIDS to PAAB. The Master Agreement is conditional upon fulfilment of conditions precedent which includes, among others, the approval of all BaIDS holders for the absolute transfer of all SAJH’s rights and obligations under the BaIDS to PAAB. The conditions precedent to the Master Agreement is to be fulfilled within 180 days from the date of the agreement (i.e. within the third quarter of 2009), failing which the agreement will lapse with the parties involved having no claims against each other. Concurrently, SAJH has entered into a facility agreement with PAAB for the right of use of assets over a 30-year period in consideration for the payment of lease rental on existing assets taken over by PAAB as well as new assets developed and funded by PAAB. SAJH will then migrate to the new licensing regime governed by the Water Services Industry Act (2006) as a licensed water operator, subject to compliance with the National Water Services Commission guidelines and regulations.

The MARCWatch Positive placement indicates that the current rating could be raised upon final consummation of the announced agreements and successful novation of the BaIDS to PAAB, a wholly-owned company of the Minister of Finance Incorporated. In the event the agreements are not successfully concluded, MARC will review the credit impact of subsequent developments on SAJH's business and financial risk profile and take appropriate rating action as and when necessary.

Contacts:
Rustam Apandi Jamaludin 03-2090 2250/ rustam@marc.com.my;
Khairul Emran Mahmud 03-2090 2278 / emran@marc.com.my