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RAM Ratings affirms AAA/P1 ratings of Air Selangor’s RM10 billion sukuk programme, anchored by Selangor State’s robust profile
Published on 01 Oct 2024.
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, which has a combined limit of RM10 bil).
Air Selangor’s sukuk ratings are linked to the credit rating of its parent, the Selangor state government. Selangor’s State Implicit Strength (SIS) is assessed to be robust, the highest ranking under RAM’s SIS Framework. Currently in a net cash position, the state government has a strong capacity to support Air Selangor. Given the Company’s essential role as an indispensable public utility supplying treated water throughout the Klang Valley, we expect state financial support to be forthcoming, if required. Past support has included loans, grants and transfers of water infrastructure.
Air Selangor recorded a higher revenue of RM2.5 bil in 2023 (2022: RM2.3 bil) following a tariff hike imposed on non-domestic users in August 2022 (Klang Valley’s first since 2006), which helped mitigate rising costs. The still-low water tariffs are insufficient to cover sizeable depreciation, leasing and financing costs. We expect the Company to stay in the red in the near to medium term, as long as tariffs do not allow for full cost recovery.
Air Selangor expects to incur sizeable capital expenditure (capex) of about RM7 bil between 2025 and 2027, mainly for pipe replacements and development of the Rasau Water Supply Scheme. To sustain its operations and meet financing and capex needs, the Company relies on continuous Sukuk drawdowns, which will result in hefty leverage and weak coverage metrics (2028 projections: 12 times and 0.05 times respectively). With RM6.2 bil drawn as of August 2024, the Company intends to upsize the combined programme limit to RM20 billion, and revise the Islamic Medium-Term Notes Programme tenure to perpetual. We do not view these changes to have a rating impact, given the Company’s credit linkage to the state government.
Air Selangor’s liquidity position remains healthy. Cash reserves of RM904 mil as at end-June 2024 sufficiently cover short-term debts of RM726 mil due in the next 12 months. The cash and cash equivalents to short-term debts ratio was 1.25 times on the same date. Air Selangor’s operational performance metrics remain commendable. Its 27.7% proportion of non-revenue water in 2023 (2022: 27.8%) is among the best in the country, outperforming the National Water Services Commission’s target.
Analytical contacts
Lee Yee Von
(603) 3385 2503
yeevon@ram.com.my
Chong Van Nee, CFA
(603) 3385 2482
vannee@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@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 2024 by RAM Rating Services Berhad
