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 maintained at stable.

The rating reflects GDC Putrajaya’s position as the sole producer and supplier of chilled water for the air-conditioning needs of all government premises and commercial buildings within the Putrajaya district, its financially strong offtakers and secure off-take agreements, and the financial support provided by its holding company, Putrajaya Holdings Sdn Bhd (PJH). MARC maintains a long-term rating of AAA/Stable on Putrajaya Holdings Sdn Bhd.

The supply of chilled water produced is secured via long-term supply agreements with the government of Malaysia, PJH and other offtakers. The offtake agreements provide for availability payments to be made to GDC Putrajaya on the basis of an agreed baseload volume and variable charges on actual consumption of the chilled water supplied. The demand charges, which are payable regardless of offtake volume, impart stability and predictability to the issuer’s revenue and cash flow generation. In the financial year ended March 31, 2011 (FY2011), the contracted demand on the chilled water supplied increased by 3.0% (FY2010: 8.1%), while its available capacity reached 83.7% (FY2010: 81.1%). Nonetheless, the total actual utilisation remains low with a load factor of 26.4%. GDC Putrajaya is currently building the Plant 4 to augment the production capacity of Plant 2. The construction of Plant 4 has been awarded to Sunway Construction Sdn Bhd with a contract value of RM42.0 million and will be fully operational by August 2012.

GDC Putrajaya has recorded higher revenue of RM125.6 million (FY2010: RM123.9 million) in FY2011. This is largely attributable to the revised chilled water tariffs and increase in chilled water demand from Plant 2 during the financial year. MARC notes increases in major cost components with the exception of management fees and maintenance expenses. GDC Putrajaya’s cost of sales decreased by 12.1% to RM104.8 million (FY2010: RM117.6 million) largely due to lower management fees and maintenance expenses. GDC Putrajaya turned in its first profit in FY2011 since its inception, posting an operating profit of RM22.3 million (FY2010: RM6.7 million) and a profit before tax of RM6.5 million. Correspondingly, its cash flow from operations and free cash flow increased to RM49.6 million (FY2010: RM39.9 million) and RM47.4 million (FY2010: RM25.9 million) respectively. GDC Putrajaya’s annual finance service coverage ratio was 7.78 times in FY2011, above its covenant level of 1.10 times.

For the six-month period ended September 30, 2011, GDC Putrajaya registered revenue of RM72.1 million and profit before tax of RM1.7 million, well above its previous financial year. However, free cash flow has declined to RM12.9 million compared to RM25.5 million in the previous corresponding period due to capital spending on Plant 4 and the repayment of advances to its holding company. As at September 30, 2011, the total advances outstanding from its holding company have declined to RM36.6 million from RM52.5 million as at end-March 2011.

MARC cautions that GDC Putrajaya’s profitability and cash flow will decline in the near-term with the hike in natural gas tariffs. Effective June 1, 2011, the new gas tariff for GDC Putrajaya, which falls under tariff category D, is RM14.61/mmBTU. The tariff represents a 36.5% increase over the last revised tariff of RM10.70/mmBTU, which was set on March 1, 2009. The gas tariff will be hiked by RM3/mmBTU every six months over the next five years and full market price thereafter.

The stable outlook assumes a reasonable outcome from GDC Putrajaya’s ongoing negotiations with its offtakers to increase its certainty of cost recovery with respect to rising natural gas costs in near to intermediate term. MARC continues to derive comfort from PJH’s historically demonstrated willingness to support GDC Putrajaya’s scheduled BaIDS redemptions by making advances to its subsidiary.

Contacts:
Ahmad Tajuddin Yeop Aznan, +603-2082 2255/ tajuddin@marc.com.my;
David Lee, +603-2082 2255/ david@marc.com.my;
Sandeep Bhattacharya, +603-2082 2247/ sandeep@marc.com.my.