RAM Ratings assigns final rating to Sungai Harmoni water receivable-backed Notes

Published on 27 Dec 2019.

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RAM Ratings has assigned a final long-term rating of AAA/Stable to Starbright Capital Berhad’s (the Issuer) up to RM700 million Asset-backed Medium-term Notes (2019/2028). The transaction has been structured to monetise the balance of receivables due under the Termination and Settlement Agreement (TSA) dated 24 May 2019 between Pengurusan Air Selangor Sdn Bhd (Air Selangor), Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (SPLASH) and Sungai Harmoni Sdn Bhd (Sungai Harmoni).

The TSA relates to the settlement of receivables owing from SPLASH to Sungai Harmoni for operations and maintenance (O&M) works performed, where SPLASH will pay Sungai Harmoni a settlement sum and cut-over sum for residual O&M fees under Sungai Harmoni’s previous O&M Agreement. Upon financial close, the balance settlement sum of RM644.38 mil as well as the unpaid cut-over sum of RM4.05 mil (both paid in nine equal annual instalments), alongside interest charges of 5.25% per annum on the remaining outstanding amount (collectively, the Receivables), will be sold to the Issuer by way of absolute legal assignment. These payments will be the sole source of repayment for the Notes.

Although the primary payment obligation lies with SPLASH, Air Selangor – its parent company – guarantees and undertakes to pay any missed instalments (including default interest of 6.75% per annum on unpaid portions of the Receivables) upon written demand. As such, the rating is underpinned by Air Selangor’s credit profile and its ability and willingness to honour its guarantee obligations under the TSA. As Air Selangor’s role is strategically and naturally aligned with the state government’s mandate to provide essential water services to the public, its credit profile – and the rating of the Notes – mirror that of the state of Selangor.

Under the transaction, the Issuer will issue RM665 million of Notes backed by the Receivables. In assigning the final rating, we have reviewed all relevant transaction documents and find them to be in line with our expectations when we assigned the preliminary rating, published on 21 November 2019. Our imputed stress scenarios continue to indicate sufficient liquidity and cashflow to enable timely servicing of the Notes – both on an ongoing basis and in the event of a full mandatory prepayment, if exercised. The transaction will be supported by an initial six-month coupon reserve of RM14.1 mil, a prefunded maintenance account for the Issuer’s annual expenses over the life of the Notes amounting to RM2.7 mil, and a RM1 mil cash reserve as additional liquidity support for principal redemption. The Issuer’s estimated first year tax expenses will also be prefunded and on an annual basis, amounts will be set aside to meet expected tax obligations. 

Upon closing, RAM will monitor the transaction’s performance on a regular basis via notices and reports from the Trustee, including semi-annual reports on designated account balances and details on funds invested in permitted investments. We will keep the rating under surveillance as long as there are outstanding Notes. Please refer to our final rating rationale for further details on the assigned rating.


Analytical contacts
Joanne Kek
(603) 3385 2520

Chong Van Nee
(603) 3385 2482

Media contact
Padthma Subbiah
(603) 3385 2577


The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad

Rating Rationale

Ratings on Starbright Capital Berhad