RAM reaffirms AA1(s) rating of Pendidikan Industri YS’s debt issue; negative Rating Watch lifted

Published on 31 January 2013

RAM Ratings has reaffirmed the enhanced AA1(s) long-term rating of Pendidikan Industri YS Sdn Bhd’s (“PIYSB” or “the Group”) RM150 million Bai’ Bithaman Ajil Islamic Debt Securities (2008/2022) (“BaIDS”). Concurrently, the negative Rating Watch on the facility has been lifted  and the outlook on the long-term rating has been reverted to stable. PIYSB provides educational services via Universiti Selangor (“Unisel” or “the University”) and Inpens International College (“Inpens”) – both institutions of higher learning established under the Private Higher Educational Institutions Act, 1996.

The enhanced rating is premised on our opinion that PIYSB’s debt-servicing ability with respect to the BaIDS is substantially enhanced by the credit profile of the Selangor State Government (“SSG” or “the State Government”, PIYSB’s shareholder via Menteri Besar Selangor (Pemerbadanan) (“MBI”)), via a strongly-worded Letter of Support (“LoS”) from the latter. Short of an outright guarantee, the document states that the State Government will ensure – either through equity, loans, grants and/or other means – that the Group meets its financial obligations on the BaIDS throughout its tenure, on a full and timely basis. The enhanced rating also takes into consideration the importance of Unisel and Inpens to the SSG in fulfilling its objectives in the realm of private higher education.

RAM’s interaction with SSG officials (including the State Treasurer) lends further support to our view that the State Government is highly likely to provide financial assistance to PIYSB, should the need arise. “On the whole, the explicit support of the SSG enhances the credit profile of the BaIDS beyond PIYSB’s inherent or stand-alone credit strength, which is viewed to be very weak,” notes Kevin Lim, RAM Ratings’ Head of Consumer and Industrial Ratings.

Independent of the LoS, the Group’s stand-alone credit profile is weak and reflects Unisel’s declining student numbers over the past few years amid an increasingly competitive industry landscape; the University has also had significant management turnover. PIYSB’s liquidity position remains fragile due to its poor financial performance over the years. The Group has recorded operating losses for the last 3 years and as a result has been unable to generate sufficient cashflow to meet its ongoing financial commitments, particularly in respect of the redemption of its BaIDS. Consequently, the SSG had helped PIYSB honour its obligations under the BaIDS in 2011, and is expected to continue to assist it in future payments. Elsewhere, we understand that the SSG intends to take over PIYSB’s outstanding BaIDS. Nonetheless, details of the State Government’s plan to do so remain preliminary at this juncture; we will continue to monitor developments on this front.

Media contact

Woon Tien Ern 

(603) 7628 1040

tienern@ram.com.my