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RAM Ratings reaffirms PKNS’s AA3/P1 issue ratings

Published on 14 Dec 2021.

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RAM Ratings has reaffirmed the AA3/P1 issue ratings of Perbadanan Kemajuan Negeri Selangor (PKNS or the Agency) (Table 1). 

The ratings are based on our expectation that the Agency will remain important to the Selangor state government (SSG) and accordingly receive state support, if required. In 2020, the SSG provided PKNS with a RM200 mil credit line to ensure the Agency weathers the financial strain of the Covid-19 pandemic. More recently, the state government extended another RM150 mil soft loan to help fund PKNS’s new investment in the power sector (undertaken through Worldwide Holdings Berhad, a fully-owned subsidiary).  

In FY Dec 2020, PKNS incurred a pre-tax loss of RM69 mil amid market challenges and operational disruptions from the pandemic. PKNS’s funds from operations debt coverage (FFODC) came in at only 0.02 times in the same period. We expect the Agency to return to profitability for full-year 2021 in view of its year-to-date showing and the resumption of construction, sales and marketing activities since 3Q 2021.  

Receipts of proceeds from the sale of RM1.2 bil of assets in Bernam Jaya, Selangor to Eastern Ecotourism City Sdn Bhd (EEC) has been delayed further. To date, PKNS has received a total of RM177 mil from EEC, RM13 mil of which was paid in FY Dec 2020. The timing of the remaining proceeds is still being negotiated. The sale of Datum Jelatek (high-end condominium project in Kuala Lumpur), meanwhile, had not materialised in 2020 as planned. Given the project’s take-up rate of just 18%, its construction cost has impinged on PKNS’s working capital. The project is however near completion. As a new strategy, PKNS is converting two residential blocks into serviced apartments, the success of which remains to be seen. 

Excluding non-recourse project debt, PKNS’s adjusted debt and gearing ratio climbed to RM2.8 bil and 0.45 times as at end-June 2021 (end-December 2019: RM2 bil and 0.31 times), primarily owing to additional debts for working capital and, to a lesser extent, the acquisition cost of Pulau Indah Power Plant Sdn Bhd (PIPP). In November 2020, PKNS completed the purchase of a 75% stake in PIPP via Worldwide Holdings for RM132.9 mil. PIPP was incorporated to develop and own a 1,200 MW power plant in Pulau Indah, Selangor. PKNS, through its subsidiary Selgate Corporation, is also building a hospital in Rawang. The estimated required outlays (total in 2022 and 2023: RM450 mil), initially expected to be partly funded by asset disposals, were delayed by the pandemic which had slowed the pace of divestments. Assuming a RM450 mil increase in borrowings in the next two years, PKNS’s adjusted gearing would trend up to around 0.50 times.

A better operating performance in the next two years amid a more conducive operating environment may result in slightly stronger FFODC of around 0.05 times, notwithstanding higher debt levels. PKNS’s future funding needs could ease if planned asset monetisation yields significant cash receipts and completed property inventories are pared down.

Table 1: PKNS’s issue ratings

Issue details

Rating

Rating Action

RM1.7 bil Islamic Medium Term Notes Programme (2013/2033)

AA3/Stable

Reaffirmed

RM1 bil Islamic Commercial Paper Programme (2021/2028)

P1

Reaffirmed

RM3 bil Islamic MTN Programme (2021/2121)

AA3/Stable

Reaffirmed

 

Analytical contacts
Amy Lo 
(603) 3385 2509
amy@ram.com.my

Thong Mun Wai 
(603) 3385 2522
munwai@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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Ratings on Perbadanan Kemajuan Negeri Selangor

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