Published on 24 Dec 2019.
RAM Ratings has reaffirmed the enhanced AA1(s)/Stable rating of Pendidikan Industri YS Sdn Bhd’s (PIYSB or the Company) RM150 million Bai’ Bithaman Ajil Islamic Debt Securities (2008/2022) (BaIDS). The rating reflects our view that PIYSB’s debt-servicing ability in respect of the BaIDS remains substantially enhanced by the proven and solid support from the Selangor State Government (SSG or the State).
In February 2011, the Selangor State Executive Council approved a RM205.5 mil allocation for all repayments on the BaIDS between 2012 and 2022. The amount, like other state expenses, must be tabled before the Selangor State Executive Council and State Assembly every year, before it is disbursed directly to PIYSB and deposited into the finance service and redemption account (FSRA).
The SSG’s commitment to supporting PIYSB is detailed in a strongly worded Letter of Support (LoS). Although not an outright guarantee, the document states that the SSG will ensure – either through equity, loans, grants and/or other means – that PIYSB fully and promptly meets its financial obligations under the BaIDS throughout the tenure of the facility.
PIYSB provides educational services via Universiti Selangor (Unisel), and is wholly owned by the State via Menteri Besar Selangor (Pemerbadanan). Given its role in supporting the State’s private higher-education objectives and based on RAM’s recent interaction with senior SSG officials, we believe that the State will continue extending financial assistance to PIYSB if needed.
Without the LoS, PIYSB’s stand-alone credit profile is very weak. In both fiscal 2018 and 1H fiscal 2019, Unisel’s average student population remained below its break-even level of 12,700 students, despite efforts to increase its enrolment. As such, PIYSB has not been able to generate sufficient cashflow to meet its operational requirements and financial obligations. The university also recorded a smaller average student population of 7,760 in 1H 2019 (1H 2018: 9,640), partly due to changes in the timing of its intakes.
Given its role in supporting the State’s higher-education objectives and the keenly competitive environment, an upward revision in Unisel’s fees is deemed unlikely despite its hefty costs. PIYSB is expected to remain mired in losses and continue relying on financial assistance from the SSG to meet its operational requirements and financial obligations.
Following a revaluation exercise on its land and properties, PIYSB’s gearing ratio was restated to 0.21 times as at end-December 2017 (from 0.80 times). The ratio remained stagnant at a respective 0.23 and 0.21 times as at end-December 2018 and end-January 2019. We expect the Company’s liquidity position to stay vulnerable; it will have to rely on timely requests for financial assistance and fund disbursements from the SSG to stay afloat.
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