RAM Ratings reaffirms AAA/Stable rating of Pengurusan Air SPV’s sukuk

Published on 13 Jan 2020.

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RAM Ratings has reaffirmed the AAA/Stable rating of Pengurusan Air SPV Berhad’s (PASB or the Company) RM20 bil Islamic MTN Programme (2009/2039) (the Sukuk). PASB is the financing conduit of Pengurusan Aset Air Berhad (PAAB or the Group), the national water-asset company tasked with facilitating the water restructuring exercise in Peninsular Malaysia and the Federal Territory of Labuan under the Water Services Industry Act 2006 (WSIA). 

Under the transaction structure, the sukukholders’ recourse to PAAB is evinced by an irrevocable and unconditional Purchase Undertaking Deed provided by the Group. As such, the rating of the Sukuk reflects PAAB’s credit risks; both PAAB and PASB are thus viewed in aggregate from a credit perspective.

The reaffirmation of the rating is based on RAM’s view that PAAB continues to derive substantial financial flexibility from the Government of Malaysia (GoM). This is underpinned by the Group’s strategic role as the custodian of national water assets and key facilitator in the restructuring of the water industries in Peninsular Malaysia and Labuan. Based on RAM’s rating methodology for government-linked entities, PAAB is considered a dependent entity as it has been tasked with a public-policy role without any profit-maximising objective. As such, its rating mirrors that of the GoM.

The explicit government support PAAB enjoys is highlighted by the Group’s RM20 bil Government-Guaranteed IMTN Programme (2011/2041) (the GG Programme), a five-year moratorium on novated federal government loans, and the GoM’s provision of soft loans and equity injections. To date, the Ministry of Finance has injected a total of RM730 mil into PAAB. 

Pengurusan Air Selangor Sdn Bhd’s acquisition of Syarikat Pengeluar Air Selangor Sdn Bhd (SPLASH) in 2019 marks the completion of Selangor’s decade-long water restructuring efforts. Selangor has since transferred ownership of the bulk of its water assets to PAAB, bringing the total number of migrated states to seven. Five states have yet to migrate, but Kedah and Pahang are anticipated to follow soon.

Given that some issues are beyond PAAB’s control – as underlined by the delayed migration of certain states – the Group faces immense challenges in its efforts to consolidate water assets amid the restructuring exercise. To acquire state water assets and their related liabilities, PAAB has to take on the federal government loans extended to the respective states, besides issuing new debts under the Sukuk and the GG Programme. The issuance proceeds will be used to finance the capex for new water assets. As such, the Group shoulders a hefty debt burden, with a gearing ratio of 10.92 times as at end-September 2019 along with RM24.6 bil of borrowings. We expect PAAB to continue gearing further as it funds the water infrastructure of migrated states and takes over the water assets and liabilities of non-migrated states.


Analytical contact
Seri Nuralya Munawir
(603) 3385 2484

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.

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