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

Published on 19 November 2014

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 rating reflects our view that PIYSB’s debt-servicing ability in respect of the BaIDS remains 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 fully and promptly meets its financial obligations under the BaIDS throughout its tenure.

PIYSB provides educational services via Universiti Selangor (Unisel) and Inpens International College (Inpens). The Group is wholly owned by the State Government via Menteri Besar Selangor (Pemerbadanan).

The Selangor State Executive Council approved an allocation of RM205.5 million in February 2011 to service the BaIDS repayments between 2012 and 2022. Since January 2012, the State Government has paid all principal and profit payments due on behalf of the Group, including RM18.03 million in 2012, RM17.53 million in 2013 and RM17.01 million in 2014.

Independent of the LoS, PIYSB’s stand-alone credit profile is very weak. The Group has been technically insolvent since 2007. Its financial profile remains characterised by operating losses and extremely thin liquidity despite a recovery in student numbers in 2013. The Group incurred an operating loss before depreciation, interest and tax of RM14.21 million in FY Dec 2013 – its fifth consecutive year of losses. Although hostels at Unisel that had been closed due to soil-settlement issues have recently reopened, we expect the Group to remain mired in losses in the foreseeable future due to a weakened franchise and bloated costs, especially staff expenses. 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 has been the case since 2012.

PIYSB derives financial flexibility from the State Government, given the role of Unisel and Inpens in supporting the State’s private higher education objectives. Notably, the State paid RM60 million to rehabilitate Unisel’s hostels in 2014. RAM’s recent interaction with senior state officials lends further support to our view that the State Government will continue to provide financial assistance to PIYSB, not only in relation to the BaIDS, but also to support its day-to-day operations, if assistance is requested.

Media contact
Amy Lo
(603) 7628 1078
amy@ram.com.my