RAM Ratings reaffirms AA1(s) rating of Pendidikan Industri YS's BaIDS

Published on 23 September 2011
©RAM Ratings has reaffirmed the enhanced AA1(s) rating of Pendidikan Industri YS Sdn Bhd’s (“PIYSB” or “the Group”) RM150 million Bai’ Bithaman Ajil Islamic Debt Securities (2008/2022) (“BaIDS”), with a stable outlook. PIYSB provides educational services via Universiti Selangor (“Unisel” or “the University”) and Inpens International College – both institutions of higher learning established under the Private Higher Educational Institutions Act, 1996.

The rating is premised on RAM Ratings’ opinion that PIYSB’s debt-servicing ability with respect to the BaIDS has been substantially enhanced by the credit profile of the Selangor State Government (“SSG” or “the State Government”, the shareholder of PIYSB), via the latter’s strongly worded Letter of Support (“LoS”). This document states that the State Government will ensure – either through equity, loans, grants and/or other means – that PIYSB will be able to fully and promptly meet its financial obligations on the BaIDS throughout the tenure of the debt issue. Nonetheless, the LoS is perceived as being short of an outright guarantee.
Apart from the LoS, the SSG has also provided a letter to PIYSB acknowledging its responsibility with regard to the BaIDS. RAM Ratings’ interaction with SSG officials (including the State Financial Officer and the State Treasurer) lends further support to our view that the State Government is very likely to provide financial assistance to PIYSB should the need arise. “The SSG recently gave its assurance to PIYSB that RM205.495 million will be made available for the repayment of the BaIDS from 2012 to 2022. The amount covers all principal and profit payments due from January 2012 until January 2022,” notes Kevin Lim, RAM Ratings’ Head of Consumer and Industrial Ratings.

The enhanced rating also takes into consideration the strategic nature of PIYSB’s main assets (i.e. Unisel and Inpens) to the SSG, previous instances of the State Government’s support for the Group, the SSG’s full ownership of PIYSB, and the State Government’s presence on PIYSB’s board of directors. On the whole, the explicit support from the SSG enhances the credit profile of the BaIDS beyond PIYSB’s inherent or stand-alone credit strength, which is viewed to be weaker.
The University’s student numbers had been declining in the past few years amid an increasingly competitive industry landscape; the University has also had significant management turnover. Meanwhile, losses had wiped out the Group’s equity, rendering it technically insolvent; although adjusting for capital grants, its gearing ratio would have been at 0.42 times as at end-Dec 2010.

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Low Li May
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limay@ram.com.my