RAM Ratings reaffirms AA3 rating of Berjaya Infrastructure’s debt issue; outlook revised to negative

Published on 13 December 2012

RAM Ratings has reaffirmed the AA3 rating of Berjaya Infrastructure Sdn Bhd’s (“Berjaya Infra” or “the Group”) RM400 million Medium-Term Notes Programme (2008/2028) (“MTN Programme”). At the same time, the outlook on the MTN Programme has been revised from stable to negative. Berjaya Infra is an investment-holding company involved in the operation, maintenance and management of water-treatment plants as well as the supply of treated water. The negative outlook is premised on the poorer-than-expected collections of Air Utara Indah Sdn Bhd (“AUI”), i.e. Berjaya Infra’s most significant revenue contributor.

Since 2010, AUI has been facing collection problems with Syarikat Air Darul Aman (“SADA”). While SADA resumed payments to AUI in early 2011 (after a year of delay), payment trends have been slower than expected. AUI’s receivables cycle of 8 months as of October 2012 remains lengthier than the 6 months in fiscal 2009. This has in turn impinged the liquidity profile of the Group. While the management has implemented measures to alleviate Berjaya Infra’s near-term liquidity concerns, a prolonged delay in payments could still exert downward pressure on its rating.

The rating could come under downward pressure should payments from SADA be delayed further. Any unexpected dividend and/or substantial acquisition would also not help Berjaya Infra’s liquidity profile and would exert pressure on its debt rating. On the other hand, the negative outlook could be reverted to stable if there is sustainable improvement in SADA’s payment track record.

Meanwhile, the rating continues to be supported by Berjaya Infra’s strong business profile, underscored by steady demand for treated water, which is an essential resource. Furthermore, it has an extensive track record of almost 2 decades in water-treatment services, as evidenced by the commendable performance of its local and foreign subsidiaries. The technology and processes involved in raw-water treatment are not complicated, thereby moderating the Group’s exposure to technology and operational risks.

The Group’s substantial acquisitions in the past year have eroded Berjaya Infra’s cash buffer, particularly when payments from SADA have been sluggish. Going forward, future acquisitions of water and/or non-water-related assets that will alter the Group’s overall business risk profile will necessitate a reassessment of the rating of the MTN Programme. Although there has been more clarity on the fate of water-treatment operators with regard to the water sector’s restructuring, we will continue monitoring the relevant developments and their impact on Berjaya Infra pending the final outcome.

Media contact

Lee Chai Len

(603) 7628 1192

chailen@ram.com.my