RAM Ratings affirms AAA/P1 ratings of Air Selangor’s RM10 billion sukuk programme

Published on 11 Sep 2023.

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RAM Ratings has affirmed the respective 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.

As a “dependent” entity under our rating methodology for government-linked entities, Air Selangor’s sukuk ratings are equated to that of the state. Selangor’s State Implicit Strength (SIS) is assessed to be robust, the highest ranking under RAM’s SIS Framework. Wholly owned by the state, Air Selangor is the sole licensee for water treatment and distribution in Selangor and the Federal Territories of Kuala Lumpur and Putrajaya. The ratings reflect our expectation that the Company will continue to enjoy substantial financial flexibility from the Selangor state government, given its indispensable role. State support for Air Selangor has come in the form of loans, grants and transfers of water infrastructure.

The implementation of the National Water Services Commission’s (the Commission or SPAN) Tariff Setting Mechanism in August 2022 saw water tariff rates rise for non-domestic users and special categories (the Klang Valley’s first hike since 2006). As a result, Air Selangor’s revenue improved to RM2.3 bil in 2022 (2021: RM2.0 bil). That said, sizeable depreciation, leasing and financing costs caused the Company to continue to sustain heavy losses (2022: -RM1.1 bil; 2021: -RM1.3 bil).

While domestic users could face a rate increase in 2024, full cost recovery will remain a distant goal unless tariffs are revised frequently enough. The Company’s adjusted gearing and adjusted funds from operations debt coverage are projected to stay weak, averaging a respective 8.76 times and 0.04 times over the next five years. Air Selangor requires a combination of funds from cash reserves, annual cashflow generation and continuous drawdowns of the Sukuk to sustain its operations and meet capital expenditure, lease and financing obligations. We expect the state government to extend financial support should the need arise.

Air Selangor’s operational performance metrics are good, having improved over the years. Its proportion of non-revenue water was a better 27.8% in 2022 (2021: 28.0%) but did not meet the Commission’s target of 27.0% due to a slower-than-expected recovery in water demand and a higher-than-expected natural rate of rise. Various efforts are underway to meet the 25% target set for 2025.


Analytical contacts
Lee Yee Von
(603) 3385 2503

Chong Van Nee, CFA
(603) 3385 2482

Media contact
Sakinah Arifin
(603) 3385 2500


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 2023 by RAM Rating Services Berhad

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