MARC has affirmed its MARC-1/A+ ratings on RUN Holding SPV Berhad’s (RUN SPV) First Series of RM200 million under its RM500 million Commercial Papers/Medium Term Notes Programme (the notes) and maintained the developing outlook on the ratings. RUN SPV is a bankruptcy remote special purpose company incorporated solely for the purpose of issuing the notes to purchase Redeemable Unconvertible Junior Notes (RUNs) issued by Puncak Niaga Holdings Bhd (PNHB) of equivalent nominal value. The ratings and outlook on ratings mirror that on the RUNs. The ratings also incorporate structural protections which ensure that distributions to the RUNs are remitted into designated accounts and applied towards debt service on the notes.
 
The notes – comprising one CP issuance and four MTN issuances - were issued to match the redemption schedule of the RUNs with the final redemption of the notes to be realised by the early redemption of the RUNs in 2011, via the exercise of a put option on the RUNs. Alternatively, the RUNs may also be redeemed in the event PNHB exercises its call option on the RUNs, also in 2011. To date, RM200 million has been issued and annual redemptions amounting to RM60 million have taken place, respectively, leaving RM140 million of MTNs presently outstanding.

All debt servicing obligations under the notes are met from all coupon payments and redemption amounts received from the RUNs, which are remitted directly into RUN SPV’s revenue account. The security agent, UOB (Malaysia) Bhd, as the sole signatory for the designated accounts, ensures that all distributions to the RUNs and all issue proceeds from the notes are deposited into the revenue account and the operating account respectively (UOB (Malaysia) Bhd has a public information rating of AA+ from MARC). Cash outflows for RUN SPV comprise transaction expenses such as issuing costs and transaction fees as well as operating expenses and tax liabilities (if any). A part of the issuance proceeds has been allocated for RUN SPV’s estimated expenses for the tenure of the transaction and disbursements of these expenses are monitored by the security agent. RUN SPV has not incurred any taxes for the financial year ended March 31, 2009.

PNHB is an investment holding company principally engaged in the supply and distribution of treated water through its subsidiaries: wholly-owned Puncak Niaga (M) Sdn Bhd (PNSB) and 70%-owned Syarikat Bekalan Air Selangor Sdn Bhd (Syabas). MARC recently affirmed its A+ rating on the RUNs and the developing outlook on the rating has been maintained in the context of an apparent stalemate in the restructuring of the Selangor water sector. The Selangor state government has recently withdrawn its offer to acquire the water asset of Syarikat Pengeluar Air Sungai Selangor Sdn Bhd and Konsortium Abass Sdn Bhd, citing Syabas’ and PNSB’s rejection of the state government’s offer as the reason for its inability to proceed with the consolidation of water assets in the state. PNSB is the concessionaire of 30 water treatment plants in Selangor, Kuala Lumpur and Putrajaya while Syabas is PNSB’s sole offtaker of treated water from these treatment plants. PNHB’s RUNs are secured against PNSB’s RM546.9 million Junior Notes A. As such, the RUNs carry the same rating as the Junior Notes A, which in turn, reflects the notching down of the junior debts vis-à-vis the secured and senior debt at PNSB’s level. 

For financial year ended December 31, 2008 (FY2008), PNSB’s revenue declined by 24.4% to RM657 million due to lower revenue from construction segment. However, water revenue remains stable, having increased by 6.1% mainly on account of higher water demand from Syabas and upward adjustment on the bulk supply rates for the Sungai Selangor Water Supply Scheme Phase 2 and the 25 WTPs scheme in November 2007 and January 2008 respectively. PNSB’s free cash flows are strong at RM182.4 million as of FY2008 with cash balances of RM347.1 million as at end-June 2009, excluding debt service reserves. Going forward, PNSB’s major financial obligations come from its debt repayment. Besides debt redemption from 2011 onwards, PNSB faces potential shortening of debt maturities arising from put options granted to holders of BaIDS and A Notes in 2010 and 2011 respectively.

Contacts:
Nadia Edmaz Abdul Hadi, 03-2090 2262/ nadia@marc.com.my;
Sandeep Bhattacharya, 03-2090 2247/ sandeep@marc.com.my