RAM Ratings assigns preliminary AAA/Stable rating to Senior Notes backed by receivables due from Air Selangor

Published on 15 Jul 2020.

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RAM Ratings has assigned a preliminary rating of AAA/Stable to the proposed RM[585]* mil Senior Notes to be issued under Swirl Assets Berhad’s (Swirl Assets or the Issuer) RM700 mil asset-backed medium-term notes facility (the MTN Facility). The proposed issuance involves eight tranches of Senior Notes, with yearly repayments, which rank above an unrated tranche of Junior Notes (collectively, the Notes). 

Swirl Assets was set up by Syarikat Pengeluar Air Selangor Holdings Berhad (SPLASH Holdings or the Originator) – owned by Gamuda Berhad (40%), Viable Chip (M) Sdn Bhd  (30%) and Sweetwater SPV Sdn Bhd (30%) – to monetise the balance of receivables due from Pengurusan Air Selangor Sdn Bhd (Air Selangor or the Obligor) under the Share Purchase Agreement  (SPA). Dated 28 September 2018, the SPA relates to the purchase of SPLASH Holdings’ entire stake in Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (SPLASH) by Air Selangor for RM2.55 bil. 

An upfront sum of RM1.9 bil for the purchase was paid on 24 April 2019 and the first annual instalment was paid on 24 April 2020. The balance eight yearly instalments from the Obligor totaling RM577.78 mil, with interest charges of 5.25% per annum (Annual Instalments) will be sold to the Issuer by way of absolute legal assignment.

Air Selangor’s acquisition of SPLASH forms a key part of the long drawn-out resolution of the state of Selangor’s water restructuring exercise. Air Selangor is ultimately owned by Menteri Besar Selangor (Incorporated) via Air Selangor Holdings Berhad  (the State’s investment arm), a corporate body established to administer assets and investments of the Selangor State Government (SSG). 

Given that Swirl Assets’ only source of cashflow is the Obligor’s Annual Instalments under the SPA, the assigned rating reflects Air Selangor’s credit profile which in turn mirrors that of the SSG. Based on RAM’s Rating Methodology for Government Linked Entities, we consider Air Selangor a dependent entity in view of its critical public policy role as the sole licence holder of water supply and distribution services in Selangor and the Federal Territories of Kuala Lumpur and Putrajaya. This, coupled with the SSG’s representation on Air Selangor’s board, supports our view that the former is highly likely to extend necessary financial support to the Obligor if required. 

The SPA gives Air Selangor the option to prepay all or part of the Annual Instalments at any time but only in inverse order of their due dates. If this occurs, the Issuer will mandatorily prepay all or part of outstanding Senior Notes within two business days of receipt of the funds in reverse order of maturity dates. Notably, we are of the view that liquidity risk is adequately addressed by prepayment terms under the MTN Facility which mirror that of the SPA. Air Selangor’s failure to meet any Annual Instalments will constitute an event of default (EOD) under the MTN Facility. The declaration of an EOD will allow the Noteholders to enforce their rights under the transaction documents. That said, all Annual Instalments not yet due cannot be accelerated, unless Air Selangor is declared insolvent.

Our assessment also considers the transaction’s structural features, such as a pre-funded maintenance account for the Issuer’s estimated tax and expenses over the tenure of the Notes as well as a prefunded Early Redemption Account (ERA) to meet early redemption premium charges (Minimum ERA Balance) in the event of an early redemption of Senior Notes. The first coupon payment of the Senior Notes (due in [February]* 2021) will also be prefunded by the MTN proceeds in the Escrow Account. 

The finite nature of the Issuer’s cashflow leaves little room for any material deviation from RAM’s base-case assumptions. Our stress scenarios on reinvestment rates, payment delays and prepayments indicate sufficient liquidity and cashflow to enable timely servicing of the Senior Notes. Timing differences between the due dates of Annual Instalments and payment dates of the Senior Notes (starting [August]* 2021) provide a [three]*-month buffer against any potential delay in payments by the Obligor. Except for funds in excess of the Minimum ERA Balance in ERA, no payment is allowed under the Junior Notes until all Senior Notes have been fully redeemed, mitigating any cashflow leakage.

RAM will assign a final rating to the Senior Notes after a satisfactory review of finalised transaction documents and relevant legal and tax opinions.

* Figures in brackets may change before the assignment of final rating.
1 Owned by Kumpulan Perangsang Sdn Bhd.
2 As amended and supplemented by the Supplemental Share Purchase Agreement dated 18 May 2020.
3 Formerly known as Kumpulan Darul Ehsan Berhad.


Analytical contacts
Tan Han Nee
(603) 3385 2529

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 2020 by RAM Rating Services Berhad

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