RAM Ratings reaffirms AAA rating of Prasarana's government-guaranteed bonds

Published on 03 May 2013

RAM Ratings has reaffirmed the AAA rating of Syarikat Prasarana Negara Berhad’s (“Prasarana” or “the Group”) RM5.468 billion Nominal Value Redeemable Guaranteed Serial Fixed-Rate Bonds (2003/2016) (“the Bonds”), with a stable outlook.
The rating reflects the irrevocable and unconditional guarantee of the Bonds by the Government of Malaysia (“GoM”) as well as the strategic importance of Prasarana as an owner and operator of key public-transport infrastructure. A wholly-owned subsidiary of the GoM, the Group operates on a non-commercial basis and relies on grants and other GoM-backed funding. Based on our Rating Approach for Government-Linked Entities (“GLEs”), Prasarana is viewed as a dependent entity. As such, the credit risk of the Group mirrors that of the GoM. For further details, please refer to RAM’s Rating Approach for GLEs, published in August 2011.
Prasarana was incorporated in 1998 as part of the GoM’s initiative to restructure the public transportation system. Through its subsidiaries, the Group owns and operates the light rail transit (“LRT”) systems of the Klang Valley, the KL Monorail and the bus fleets servicing the Klang Valley, Penang and Kuantan. To expand its revenue base, as public-transport operators overseas have done, Prasarana has ventured into the real estate industry. In this regard, it has entered into several joint-ventures to develop a mix of commercial and residential property projects, mostly on land owned by the Group in the vicinity of LRT stations.
Prasarana remained in the red for 11M FY Nov 2012. The Group has been recording operating losses due to low fares, huge operating costs and unprofitable routes given its social obligation to provide public transport services. As at end-November 2012, Prasarana shouldered a heftier debt load of RM10.59 billion (end-December 2011: RM9.41 billion). The increase in borrowings was largely due to the issuance of RM2 billion of government-guaranteed sukuk to fund the Group’s capital expenditure and to refinance some of its existing borrowings. In line with its heavier debt load and eroded equity, Prasarana’s gearing ratio weakened to 15.5 times as at end-November 2012 (end-December 2011: 5.4 times). Its balance sheet is envisaged to improve going forward, with capital contributions of around RM2 billion received from the GoM in January 2013.
“Going forward, the Group’s debt burden is expected to increase to around RM14 billion with the potential issuance of RM6 billion of sukuk to fund the extension of the LRT lines and existing infrastructure development projects. Nevertheless, as an owner and operator of key public-transport infrastructure, Prasarana plays a critical role in the GoM’s initiatives to improve public transportation; its relationship with the latter is viewed as strong. We believe that the Group will continue to derive financial flexibility from the GoM,” says Kevin Lim, RAM Ratings’ Head of Consumer and Industrial Ratings.

Media contact
Evelyn Khoo
(603) 7628 1075
evelyn@ram.com.my