RAM Ratings reaffirms ratings of Selia Selenggara Selatan

Published on 09 January 2014

RAM Ratings has reaffirmed the respective AAA(bg), C1 and C3 ratings of Selia Selenggara Selatan Sdn Bhd’s (Selia Selatan or the Company) Senior Secured Serial Bonds (Senior Bonds), Junior Secured Serial Notes B (Junior Notes B), and Junior Secured Serial Notes C (Junior Notes C). While the Senior Bonds and Junior Notes B have a stable outlook, the outlook on Junior Notes C outlook has been revised to negative (from stable), premised on the insufficiency of its funds to fully repay the outstanding RM124 million upon maturity on 31 March 2014. The enhanced rating of the Senior Bonds, meanwhile, reflects the credit strength of the bank guarantee extended by Malayan Banking Berhad, which carries AAA/Stable/P1 financial institution ratings from RAM.

While Selia Selatan’s RM82.4 million of cash and bank balances as at end-August 2013 sufficiently covers the outstanding RM19 million of Senior Bonds and RM1 million of Junior Notes B, the funds are insufficient to repay the outstanding RM124 million of Junior Notes C. We understand that the Junior Notes C, which are solely held by Selia Selenggara Sdn Bhd, the parent company of Selia Selatan, are currently in the preliminary stage of being converted into equity, hence waiving all fixed repayment obligations under the financing instrument. We also note that the Company’s ability to service Junior Notes B cannot be examined in isolation from its obligations on Junior Notes C as they rank pari passu with each other (although Junior Notes B rank ahead in terms of right of payment). Meanwhile, the rating remains moderated by force majeure and expropriation risks.

Selia Selatan is a special-purpose vehicle with the exclusive right to maintain federal roads in Negeri Sembilan, Melaka and Johor by way of a Privatisation Agreement (PA) with the Government of Malaysia (the Government) that expires on 16 February 2026. Road maintenance involves low operational risk and the Company enjoys a stable annual revenue of around RM75 million from routine maintenance work. Furthermore, counterparty risk is deemed low as the Government is its sole obligor under the PA.

Media contact

Asif M Noh

(603) 7628 1175

asif@ram.com.my