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RAM Ratings reaffirms AA1(s) rating of Pendidikan Industri YS’s sukuk

Published on 25 Jan 2021.

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RAM Ratings has reaffirmed the enhanced AA1(s)/Stable rating of Pendidikan Industri YS Sdn Bhd’s (PIYSB or the Company) RM150 mil Bai’ Bithaman Ajil Islamic Debt Securities (2008/2022) (BaIDS). The rating reflects our view that PIYSB’s debt-servicing metrics are substantially enhanced by the solid support of the Selangor State Government (the 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 State has been settling all the principal and profit payments due on behalf of PIYSB since January 2012. In late 2020, PIYSB - with the approval and backing of the SSG - initiated early redemption of the BaIDS. Pending the sukukholders’ approval, the exercise is envisaged to be completed by 29 January 2021.

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 on the BaIDS throughout its tenure.  

PIYSB provides educational services via Universiti Selangor (Unisel) and is wholly owned by the State via Menteri Besar Selangor (Pemerbadanan) (MBI). We believe that the SSG will keep extending financial assistance to PIYSB if needed, given the Company’s role in supporting the State’s private higher-education objectives and based on the State’s representations to RAM. 

Without the LoS, PIYSB’s stand-alone credit profile is very weak. Unisel’s average student population has been trending downwards and languishing below its break-even level of 12,700 students. Its average declined from 9,375 students in 2018 to 8,082 in 2019, before slumping further to 7,745 in 9M 2020, compounded by the COVID-19 pandemic. This is, however, somewhat mitigated by Unisel’s preparedness in transitioning to an online learning platform. All said, PIYSB is still unable to generate sufficient cashflow to meet its operational requirements and financial obligations.  

In November 2020, PIYSB received an offer to sell a parcel of land in Mukim Dengkil, Daerah Sepang, for RM39 mil. The proposed sale, although credit positive in terms of near-term liquidity, is not expected to improve the Company’s long-term financial viability. Moreover, we are unable to assess PIYSB’s current financial position due to the absence of its management accounts for fiscal 2019 and 2020 due to persistent technical issues amid the change in Unisel’s management software.

Given its role in supporting the State’s higher-education objectives and the Ministry of Higher Education’s moratorium on university fee increases, Unisel will not be able to raise its fees in the near term. As such, we expect PIYSB to remain mired in losses and to continue relying on financial assistance from the SSG.

 

Analytical contact
Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

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 2021 by RAM Rating Services Berhad



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