MARC has affirmed its AAAID long-term rating on Gas District Cooling (Putrajaya) Sdn Bhd’s (GDC Putrajaya) RM300 million Al-Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS). The rating outlook is stable. The rating reflects GDC Putrajaya’s position as the sole supplier of chilled water to all government premises in Putrajaya as well as the commercial buildings owned by Putrajaya Holdings Sdn Bhd (PJH), the relatively low operating risk associated with the district cooling facilities, the long-term offtake and gas supply agreement and the superior credit quality of its offtakers, namely the government of Malaysia and PJH. The rating also reflects the significant level of financial support provided by GDC Putrajaya’s immediate shareholder, PJH; and ultimate shareholder, the government-owned oil and gas conglomerate Petroliam Nasional Bhd (Petronas). The financial support in the form of advances and investment in preference shares from its sponsors has alleviated GDC Putrajaya’s still weak credit metrics.

GDC Putrajaya owns five main district cooling plants, namely Plant 1, Plant 2, Plant 3, the Wisma Putra plant and the Putrajaya International Convention Centre plant, all of which are located in Putrajaya, the Federal Administrative Capital of Malaysia. Its plants supply chilled water to both government premises and commercial buildings within the vicinity. Offtake is assured through long-term chilled water supply agreements entered into with the federal government and PJH. On November 21, 2008, GDC Putrajaya became a fully-owned subsidiary of PJH subsequent to its acquisition by PJH from Gas District Cooling (Holdings) Sdn Bhd (GDCH), a wholly owned subsidiary of Petronas. PJH is co-owned by KLCC (Holdings) Sdn Bhd, a wholly-owned subsidiary of Petronas (64.41%), Khazanah Nasional Bhd (15.59%) and Kumpulan Wang Amanah Negara (20.00%). MARC maintains a long-term rating of AAA/Stable on PJH.

MARC’s analysis takes into account its monopolistic nature and assured ‘demand payments’ that must be made regardless of the offtake volume. During the financial year ended March 31, 2009 (FY2009), overall actual consumption level by the offtakers surpassed the budgeted consumption level by 12.9%. Nevertheless, MARC notes that the plants still have ample spare capacity. MARC believes that the load factor will pick up as more new government buildings and commercial buildings are expected to be completed within the next four years (between 2010 and 2013). MARC believes GDC Putrajaya will see an increase in its revenue in FY2010 with the addition of the new Plant 3 which supplies chilled water to the new PULLMAN Putrajaya Lakeside and Putrajaya Maritime Center. The stable rating outlook reflects the structural protections under the BaIDS’ financial covenants and the expectation of adequate capital support from GDC Putrajaya’s immediate and ultimate shareholders which will continue to insulate BaIDS holders against uncertain cost recovery and cash flow implications.

For FY2009, GDC Putrajaya recorded a 17.6% increase in revenue to RM114.4 million (FY2008: RM97.3 million). Operating profit improved to RM8.5 million from RM3.8 million in FY2008, partly attributed to lower administration expenses since the outsourcing of plant operation and maintenance to a third party. Consequently, pre-tax losses have reduced to RM6.34 million compared to RM12.05 million in FY2008.

Despite the recurring annual pre-tax losses, GDC Putrajaya’s cash flow from operations (CFO) have been sufficient to cover financing costs, although MARC notes a 31.5% decline year-on-year to RM34.6 million. The lower CFO was due to higher plant operating expenditures as well as the hike of 123.6% in subsidised gas prices in July 2008. MARC believes that any significant increase in gas prices will affect GDC Putrajaya’s profitability and cash flow generation if it is not offset by a corresponding upward revision in chilled water tariffs. CFO interest coverage, nonetheless, remains favourable at 2.13 times (x).

GDC Putrajaya’s FY2009 annual finance service coverage ratio (AFSCR) of 5.86x and debt-to-equity (DE) ratio of 46:54 currently provides some covenant headroom against its minimum covenanted AFSCR of 1.1x and maximum DE ratio of 50:50. The support available from its immediate and ultimate shareholders and their own strong credit standing mitigates the impact of recurring losses on GDC Putrajaya’s capital base and associated implications for gearing-related covenant compliance. Shareholders’ investment in preference shares totalling RM195.48 million as at FY2009 has ensured compliance with the DE ratio covenant. MARC takes comfort in shareholders’ demonstrated willingness to provide financial support to GDC Putrajaya if necessary.

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