MARC is issuing this rating update in relation to its AA-ID debt rating on SAJ Holdings Sdn Bhd’s (SAJH) RM1.28 billion BaIDS which remains on MARCWatch Positive. SAJH’s AA-ID debt rating was first placed on MARCWatch Positive on March 16, 2009 following an announcement that the potable water concession holder had entered into an agreement (The Master Agreement) for the proposed disposal of its water assets and corresponding liabilities to Pengurusan Aset Air Berhad (PAAB). MARC viewed the execution of the Master Agreement as positive given that it removed considerable uncertainty regarding the restructuring of the Johor water sector and corresponding credit implications for SAJH’s rated debt. The MARCWatch Positive had signalled the possibility of a rating upgrade upon final consummation of the agreements and successful transfer of the indebtedness under the BaIDS to PAAB, a wholly-owned company of the Ministry of Finance Incorporated.

Since MARC’s last rating action, SAJH has obtained the approval of BaIDS holders vide an Extraordinary General Meeting on June 12, 2009 for the proposed purchase of the BaIDS by PAAB exercise which is to be completed by July 17, 2009. SAJH or government-owned PAAB or a nominee of PAAB has been given the option to purchase the BaIDS from the BaIDS holders at an agreed yield to be exercised at any time between June 12, 2009 and July 17, 2009. In the event that the option is not exercised before July 17, 2009, the option will lapse. Upon the successful completion of PAAB’s acquisition and return of the BaIDS to SAJH for cancellation as confirmed by the trustee or facility agents, MARC expects to withdraw its last assigned rating on SAJH’s BaIDS.

SAJH is the sole concessionaire for Johor’s integrated water supply operations under a 30-year concession (until 2030). SAJH’s strong credit profile is supported by a favourable tariff structure which provides considerable protection and revenue stability. The proposed disposal of SAJH’s assets and corresponding liabilities is intended to facilitate the migration of SAJH from the current concession-based regulatory regime to a licensing-based regime. The completion of the Master Agreement is expected by the third quarter of 2009 upon which the termination of SAJH’s build-operate-transfer concession would become effective and it would receive a service license to operate as a water operator.

MARC will continue to monitor the developments in respect of the completion of the Master Agreement and the purchase of the BaIDS by PAAB exercise with a view to resolving the current MARCWatch placement.

Contacts:
Khairul Emran Mahmud 03-2090 2278 / emran@marc.com.my;
Sandeep Bhattacharya 03-2090 2247/ sandeep@marc.com.my