RAM Ratings assigns AAA/P1 ratings to Pengurusan Air Selangor’s RM10 billion Sukuk Murabahah Programme

Published on 11 Dec 2020.

Share Tweet Email

RAM Ratings has assigned respective long- and short-term ratings of AAA/Stable and P1 to Pengurusan Air Selangor Sdn Bhd’s (Air Selangor or the Company) Islamic Medium-Term Notes Programme of up to RM10 bil in nominal value and Islamic Commercial Papers Programme of up to RM10 bil in nominal value. Both facilities have a combined limit of RM10 bil in nominal value and are collectively referred to as “the Sukuk”. Under both facilities, Air Selangor may also opt to issue SRI Sukuk Kelestarian that complies with its Sustainable Development Sukuk Kelestarian Framework, which has been reviewed by RAM Sustainability Sdn Bhd.

Air Selangor became the sole licensee for water treatment and distribution to consumers in Selangor and the Federal Territories of Kuala Lumpur and Putrajaya effective 13 September 2019 after obtaining the individual licence granted to it under the Water Services Industry Act 2006. The Company is wholly owned by Selangor’s investment arm, Air Selangor Holdings Berhad (formerly known as Kumpulan Darul Ehsan Berhad), while its ultimate shareholder is Menteri Besar Selangor (Incorporated) (MBI Selangor). 

Based on RAM’s rating methodology for government-linked entities, Air Selangor is considered a “dependent” entity as it has been tasked with the public policy role of providing essential water services.  The ratings are supported by our expectation that the Company will continue to derive substantial financial flexibility from the Selangor state government, given the pivotal role it plays in the state’s water sector. The state has also been providing various forms of support to Air Selangor, such as through the extension of loans and grants for the Company’s capital expenditure and development purposes. As such, we have equated the Sukuk ratings of Air Selangor to that of the state. Selangor’s state implicit strength (SIS) is assessed to be robust – the highest category in RAM’s SIS Framework. 

Apart from the 100%-ownership, the state government’s association with Air Selangor is seen in the fact that four out of the Company’s seven directors are senior state officials. The alignment of the two parties’ interests is further cemented by the terms of the transaction which require the state (via MBI Selangor) to retain a majority shareholding in the Company. The breach of this term will constitute an event of default.

Selangor’s water operations have continued to improve over the years, with lower non-revenue water levels (2019: 29.60%; 2018: 31.60%) and higher reserve margins (2019: 10.97%; 2018: 5.87%). Although operationally profitable, Air Selangor continues to be loss-making in its bottom-line due to hefty depreciation and interest charges (linked to leases and capital expenditure), and the delayed implementation of the tariff setting mechanism by the Federal Government for water tariff hikes.

The state’s water services have drawn national attention of late given recurring supply disruptions. These were caused by pollution of raw water sources and the task of addressing these issues falls on multiple authorities at both the state and federal levels. The state government had proposed stricter laws and penalties to be imposed for such offences. Furthermore, RM200 mil was recently allocated – under the Selangor State Budget 2021 – to four projects which are anticipated to mitigate up to 90% of the risk of operational stoppages at water treatment plants in the event of pollution. Despite the minimal cost currently incurred by Air Selangor in mitigating these stoppages, we remain cautious of potential rise in expenses should such disruptions persist. The recurring disruptions have also led to negative publicity as well as public backlash towards the Company. Frequent and uncontrolled incidents of raw water pollution underscore the environmental risk that plagues Air Selangor’s operations. 


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.

Published by RAM Rating Services Berhad
© Copyright 2020 by RAM Rating Services Berhad

Rating Rationale

Ratings on Pengurusan Air Selangor Sdn Bhd