MARC has affirmed its AAAID long-term rating on Gas District Cooling (Putrajaya) Sdn Bhd's (GDC Putrajaya) RM300 million Al-Bai' Bithaman Ajil Islamic Debt Securities (BaIDS)

MARC has affirmed its AAAID long-term rating on Gas District Cooling (Putrajaya) Sdn Bhd's (GDC Putrajaya) RM300 million Al-Bai' Bithaman Ajil Islamic Debt Securities (BaIDS). The rating outlook is maintained at stable.

The rating derives from intermediate and ultimate holding company Putrajaya Holdings Sdn Bhd's (PJH) and Petroliam Nasional Berhad's (PETRONAS) continued support of GDC Putrajaya's ongoing debt service obligations and assured offtake of production of chilled water by the federal government and PJH based on contracted volume. MARC maintains long-term credit ratings of AAA/Stable on PJH and PETRONAS.

GDC Putrajaya is the owner and concession holder of a gas district cooling system which supplies chilled water to government and commercial buildings in Putrajaya through long-term offtake agreements. The offtake agreements provide for availability payments to be made to GDC Putrajaya on the basis of a demand and variable charges on actual consumption of the chilled water supplied. The schedule of availability payments provides strong visibility to the company's cash flows and revenue over the term of the offtake agreements.

The contracted demand for chilled water for the seven-month period ended July 31, 2012 (7M2012) increased by 14.5% to 77,943 Refrigeration Tonnage (RT) compared to 68,051 RT in the nine-month period ended December 31, 2011 (PE2011) with the relocation of several government ministry departments to Precinct 4, Putrajaya. Demand for chilled capacity is projected to rise further in 2013 with the expected completion of various buildings in Precinct 3 and 4. In anticipation of future demand, GDC Putrajaya has expanded its capacity with the construction of Plant 4. However, since MARC's previous review, the completion date of the plant has been extended by four months to December 2012.

In PE2011, GDC Putrajaya's revenue and pre-tax profit stood at RM109.5 million and RM7.6 million respectively compared to RM125.6 million and RM6.5 million for the financial year ended March 31, 2011 (FY2011) in line with the higher chilled water tariffs and lower operating expenses. In 7M2012, GDC Putrajaya's operating profit margin increased marginally (PE2011: 17.22%) due to the increase in contracted offtake volume and variable consumption of chilled water supplied by Plant 2 and Plant 3 combined with lower maintenance expenses. Going forward, natural gas prices are likely to rise as the government intends to introduce market-based pricing for natural gas by 2016. This will in turn exert pressure on GDC Putrajaya's margins. The company's ability to remain profitable would then depend on its ability to pass on the increase in utility costs to its offtakers through further negotiations of the tariffs.

As at July 31, 2012, the company has RM65.8 million in cash and bank balances after making a repayment of shareholders' advances in 2011 amounting to RM43.5 million. This, in addition to the company's receivables of RM22.6 million from the government, should enable GDC Putrajaya to comfortably meet its next scheduled debt repayment of RM50.0 million on December 4, 2012 and coupon payment of RM6.5 million. MARC also draws comfort from PJH's historical willingness to support GDC Putrajaya by making advances to its subsidiary to meet debt obligations.

The maintenance of the stable outlook in the face of uncertainty as to GDC Putrajaya's future ability to seek a complete pass-through of gas costs reflects MARC's expectation that there will not be any weakening of the willingness or capacity of GDC Putrajaya's immediate and/or ultimate parent to provide support for the district cooling operator's debt service obligations. A material change in the support assumption will result in revision of GDC Putrajaya's rating.

Contacts: Tan Eng Keat, +603-2082 2265/ engkeat@marc.com.my; Jason Kok, +603-2082 2258/ jason@marc.com.my; David Lee, +603-2082 2255/ david@marc.com.my.

November 28, 2012