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

Published on 02 November 2015

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. 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 the tenure of the facility.
In February 2011, the Selangor State Executive Council approved an allocation of RM205.5 million to service repayments on the BaIDS between 2012 and 2022. Since January 2012, the State Government has paid all principal and profit payments due on behalf of the Group.
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).
Independent of the LoS, PIYSB’s stand-alone credit profile is very weak. For FY Dec 2014, the Group incurred an operating loss before depreciation, interest and tax of RM7.32 million – marking its 6th consecutive year of losses. Despite the reopening of Unisel’s Bestari Jaya hostel in July 2014, after having been shut down due to foundation-settlement issues, the university had not been able to maintain its student numbers, which fell in FY Dec 2014 and 8M FY Dec 2015. The Group’s cash-generating ability is also very weak, with its funds from operations (FFO) dwelling in the negative region. We expect the Group to remain in a loss-making position in the medium term. Without a turnaround, PIYSB is anticipated 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.
The Group’s losses over the years have rendered it technically insolvent since 2007. Meanwhile, its financial profile remains characterised by operating losses and thin liquidity. As at end-July 2015, PIYSB’s cash and bank balances stood at only RM2.85 million, excluding a balance of RM13.54 million in its Finance Service Reserve Account (FSRA). Moving forward, PIYSB’s liquidity position is expected to remain vulnerable. However, we note that the State has made available to PIYSB a RM20 million revolving fund, which will help ease the Group’s tight liquidity position.
PIYSB derives financial flexibility from the State Government, given the role of Unisel and Inpens in supporting the State’s private higher-education objectives. RAM’s recent interaction with senior state officials underlines 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 requested.

Media contact
Chan Yisze
(603) 7628 1111
yisze@ram.com.my