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

Published on 27 Sep 2022.

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RAM Ratings has reaffirmed the respective long and short-term AAA/Stable and P1 ratings of Pengurusan Air Selangor Sdn Bhd’s (Air Selangor or the Company) Islamic Medium-Term Notes Programme and Islamic Commercial Papers Programme (collectively, the Sukuk). The programmes have a combined limit of RM10 bil in nominal value. 

Ultimately owned by Menteri Besar Selangor (Incorporated), Air Selangor is the sole licensee for water treatment and distribution to consumers in Selangor and the Federal Territories of Kuala Lumpur and Putrajaya. The reaffirmed ratings reflect our expectation that the Company will continue to derive substantial financial flexibility from the Selangor state government in view of its pivotal role in the state’s water sector. This view is reinforced by the state government’s track record of support for Air Selangor in the form of loans, grants and transfers of water supply service assets. The Company is considered a “dependent” entity under RAM’s rating methodology for government-linked entities. As such, the Sukuk’s ratings are equated to that of the state. Selangor’s State Implicit Strength (SIS) is assessed to be robust, the highest ranking in RAM’s SIS Framework.

Various initiatives to reduce non-revenue water (NRW) levels and improve the water reserve margin have proven to be effective. Air Selangor recorded a lower NRW of 27.9% in 2021 (2020: 28.5%) and a higher water reserve margin of 13.6% (2020: 11.9%). In terms of treated water quality in 2021, Air Selangor’s compliance with the Ministry of Health’s Drinking Water Quality Standard stood at 99.80%. The Company has also seen fewer water supply disruptions since 2021 following greater inter-agency coordination to combat water source pollution issues.

After 16 years with no tariff adjustments, the recent increase in the rate for selected non-domestic categories saw the Tariff Setting Mechanism coming into effect. This is expected to contribute additional water revenue of RM20 mil per month, the full impact of which will be observed in FY Dec 2023. Regular rate reviews are crucial for Air Selangor’s long-term financial sustainability. Although operationally profitable, existing tariff levels are sufficient only to partially defray its leasing and borrowing costs. As such, the Company will have to rely on the Sukuk Programme and financial flexibility from the state government (if required), pending much-needed periodic rate hikes in the future.

Continual capital expenditure investment will be required for the construction of new infrastructure to meet increasing water demand as well as the replacement and refurbishment of ageing infrastructure. This will be funded by drawdowns from the Sukuk as well as via Pengurusan Aset Air Berhad. As such, we expect Air Selangor to register an average adjusted gearing ratio of 5.92 times and very weak average adjusted funds from operations debt coverage of 0.04 times in the next five years.


Analytical contacts
Lee Jo Yee
(603) 3385 2583

Chong Van Nee, CFA
(603) 3385 2482


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
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