Published on 14 Dec 2021.
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.
RM1.7 bil Islamic Medium Term Notes Programme (2013/2033)
RM1 bil Islamic Commercial Paper Programme (2021/2028)
RM3 bil Islamic MTN Programme (2021/2121)
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Thong Mun Wai
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Ratings on Perbadanan Kemajuan Negeri Selangor