RAM Ratings reaffirms Pendidikan Industri YS’s AA1(s) sukuk rating

Published on 04 December 2013

RAM Ratings has reaffirmed the enhanced AA1(s)/Stable rating of Pendidikan Industri YS Sdn Bhd’s (PIYSB or the Group) RM150 million Bai’ Bithaman Ajil Islamic Debt Securities (2008/2022) (BaIDS). The AA1(s) rating reflects our view that PIYSB’s debt-servicing ability on the BaIDS has been substantially enhanced by a strongly worded Letter of Support (LoS) from its shareholder, the Selangor State Government (the State Government). Although not an outright guarantee, the document states that the State Government will ensure – either through equity, loans, grants and/or other means – that the Group will be able to fully and promptly meet its financial obligations on the BaIDS throughout its tenure.

PIYSB provides educational services via Universiti Selangor (Unisel) and Inpens International College (Inpens) – both institutions of higher learning established under the Private Higher Educational Institutions Act, 1996. PIYSB is wholly owned by the the State Government via Menteri Besar Selangor (Pemerbadanan).

“The State Government has been stepping in to honour its obligations under the BaIDS since 2012, and is expected to continue doing so. In February 2011, the Selangor State Executive Council approved an allocation of RM205.5 million to service the BaIDS repayments between 2012 and 2022,” highlights Kevin Lim, RAM’s Head of Consumer & Industrial Ratings. We understand that the State Government has shelved its earlier plan to take over the outstanding BaIDS.

Independent of the LoS, PIYSB’s stand-alone credit profile is very weak. Unisel’s student numbers have been declining amid an increasingly more competitive industry landscape. Recent growth in student numbers has also been affected by the operational issues of its Bestari Jaya hostel, which was closed down in January 2013 due to soil-settlement problems. PIYSB's financial profile remains characterised by operating losses and extremely thin liquidity. It incurred an unaudited operating loss before depreciation, interest and tax of RM16.90 million in FY Dec 2012 – its fourth consecutive year of losses. At company level, PIYSB’s performance in 9M FY Dec 2013 was further weighed down by higher staff costs. We expect PIYSB’s operating losses to deepen in fiscal 2013, and the Group to remain mired in losses in the foreseeable future. Without a turnaround, PIYSB is expected to rely on financial assistance from the State Government to meet its operational cashflow requirements and debt repayments – as was the case in 2012.

Given the role of Unisel and Inpens in supporting the State Government’s objectives in the realm of private higher education and their strategic links with the latter, PIYSB derives financial flexibility from the State Government. RAM’s recent interaction with senior State Government official lends further support to our view that the State Government will continue providing financial assistance to PIYSB, not only in relation to the BaIDS, but also to financially support its day-to-day operations, if assistance is requested.

Media contact

Amy Lo

(603) 7628 1078

amy@ram.com.my