RAM Ratings reaffirms Pengurusan Air SPV’s AAA/P1 sukuk ratings

Published on 07 Feb 2023.

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RAM Ratings has reaffirmed the AAA/Stable rating of Pengurusan Air SPV Berhad’s (PASB or the Company) RM20 bil Islamic Medium-Term Notes (IMTN) Programme and the P1 rating of its RM2 bil Islamic Commercial Papers (ICP) Programme. The ICP Programme may also be issued as a sustainability sukuk. RAM Sustainability Sdn Bhd has assigned the respective Environmental Benefit (EB) and Social Benefit (SB) ratings to PASB’s green and social projects under the Company's Sustainability Sukuk Framework.

The reaffirmation of the ratings is premised on our view that PASB will continue to derive substantial financial flexibility from the Government of Malaysia via Ministry of Finance, Incorporated, PASB’s ultimate holding company. PASB is the financing conduit and 100%-owned subsidiary of Pengurusan Aset Air Berhad (PAAB or the Group), the national water asset company mandated to facilitate the water restructuring exercise in Peninsular Malaysia and the Federal Territory of Labuan pursuant to the Water Services Industry Act 2006 (WSIA). The Group is also tasked with developing and financing water infrastructure in these areas.

An irrevocable and unconditional Purchase Undertaking Deed provided by PAAB under the transaction structures gives sukukholders recourse to the Group. Therefore, the ratings of the sukuk reflect PAAB’s credit risks. The ratings are also reinforced by PAAB’s strategic role as the custodian of national water assets and key facilitator of the water industry’s restructuring. Given PAAB’s unique public policy function, where profit generation is secondary, the Ministry of Finance (MoF) strongly influences its key operational decisions and has provided firm support to date. All considered, PAAB is deemed a “dependent” entity under RAM’s rating methodology for government-linked entities. Therefore, its rating essentially mirrors the government’s. 

The government’s financial backing for PAAB is evident from the guarantee on PASB’s unrated RM20 bil IMTN Programme (2011/2041) (the GG Programme). Aside from facilitating lower funding costs under the GG Programme, the MoF has also provided an equity injection of RM730 mil to the Group. In view of the vital part that PAAB plays within the sector, RAM foresees the government providing financial assistance to it whenever required and maintaining close oversight via PAAB’s Board. 

The Group’s bottom line continues to be weighed down by hefty tax expenditures following adjustments to its treatment of capital allowances (FY Dec 2021: RM190 mil; historical average: RM270 mil). Until PAAB is able to amend its current tax computation methods, management expects annual tax expenses to stay elevated. It can however set off near-term tax charges with a sizeable capital allowance allocation which remains available. 

To date, a total of 10 states have migrated to the regime under the WSIA, while Terengganu’s and Labuan’s move is pending. PAAB’s debt load remained heavy given the capital intensity of its business, resulting in gearing ratios of above 20 times (FY Dec 2021: RM25.3 bil; 9M FY Dec 2022: RM26.6 bil). Nevertheless, the Group’s interest coverage ratio of above 1 time indicates that its operating cashflow is sufficient to meet annual interest obligations. We draw comfort from PAAB’s well spread-out debt repayment profile and accessibility to the sukuk market for additional funding, thanks to its crucial function and relationship with the government. We expect the Group to continue to gear up as it works towards concluding the industry’s restructuring exercise while enhancing existing infrastructure. 


Analytical contacts
Seri Nuralya Munawir
(603) 3385 2484

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.

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