Tuesday, December 14, 2010

RAM Ratings maintains negative Rating Watch on Berjaya Infrastructure

KUALA LUMPUR: RAM Rating Services Bhd has maintained the Rating Watch (negative outlook) on the AA3 rating of Berjaya Infrastructure Sdn Bhd's (BISB) RM400 million Medium-Term Notes (MTN) Programme (2008/2028).

RAM Ratings said on Tuesday, Dec 14 the subsidiaries operate, maintain and manage water-treatment plants (WTPs) as well supply of treated water.

Below is the statement issued by RAM Ratings

The negative Rating Watch has been in place since 8 October 2010, premised on the poor collections of Air Utara Indah Sdn Bhd (AUI), that is BISB's main revenue contributor (end-December 2009: 59% of its revenue).

AUI's receivables cycle lengthened from 7.5 months as at end-December 2009 to 10 months as at end-October 2010.

Following the establishment of Syarikat Air Darul Aman (SADA) to assume the role of Jabatan Bekalan Air Kedah (JBAK), we understand from BISB's management that payments will be handled by SADA from January 2010 onwards.

While all the invoices for 2009 have been fully paid by JBAK, AUI has yet to receive payments for 2010, pending the formalisation of SADA's legal standing to assume the roles and responsibilities of JBAK. As a result, AUI's outstanding receivables ballooned from RM28.04 million to RM46.30 million between December 2009 and October 2010.

It appears that SADA will now be in a better position to make payments following an average 27% tariff hike that took effect on 1 October 2010. The tariff increase is expected to help SADA defray some of its costs in relation to water production and management, as well as the upcoming rental payment to PAAB post-migration.

Despite this, the timing and quantum of payments remain uncertain. The delayed payments will lead to liquidity stress for BISB if AUI's collections do not improve significantly. Since AUI has to resort to its cash reserves (and, ultimately, BISB's) to fund its operating costs given the non-payment of 2010 invoices, this would gradually diminish BISB's RM28.39 million of cash holdings (as at end-October 2010) and affect its ability to service its approximately RM12 million of debt obligations come October 2011.

On the other hand, BISB's decision to put its expansion plans on hold to augment its overseas operations alleviates some of our earlier concerns about its ability to comply with the RM11 million minimum-balance requirement vis-''-vis its Debt Service Reserve Account by April 2011. RAM Ratings will maintain close monitoring on the relevant developments; further assessment of the rating will be premised on the subsequent regularisation of collections.

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