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 enhance

Published on 28 October 2016

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 the demonstrated support of the Selangor State Government (SSG or the State), which has paid all principal and profit payments due on behalf of the Group since January 2012.

The SSG’s intention to support the Group is delineated in a strongly worded Letter of Support (LoS) from the former. Although not an outright guarantee, the document states that the State Government will ensure – either through equity, loans, grants and/or other means – that PIYSB fully and promptly meets its financial obligations under the BaIDS throughout the tenure of the facility. The Selangor State Executive Council had also, in February 2011, approved a RM205.5 million allocation for all repayments on the BaIDS from 2012 to 2022.

PIYSB provides educational services via Universiti Selangor (Unisel). Meanwhile, Inpens International College had ceased to be a subsidiary of the Group in August 2015. The Group is wholly owned by the State Government via Menteri Besar Selangor (Pemerbadanan) (MBI).

Independent of the LoS, PIYSB’s stand-alone credit profile is very weak. In 2015, Unisel recorded an operating loss before depreciation, interest and tax of RM12.18 million (2014: RM7.44 million) as it continued to operate below breakeven point. While Unisel’s average active student population per semester inched up 0.6% to 9,522 for the year, it remains way below the breakeven level of 12,700 students. While we note that the university has engaged in several initiatives to grow its student population, we do not envisage a significant increase in student numbers in the near- to medium- term. As such, we expect PIYSB to remain loss-making. Without a turnaround, the Group is anticipated to rely on financial assistance from the SSG to meet its operational-cashflow requirements and financial payments.

To ease the Group’s liquidity position, the SSG had made available to PIYSB a RM20 million revolving fund and RM44 million loan while MBI has provided it with a RM10 million loan. However, PIYSB’s liquidity position is expected to remain vulnerable going forward as it is dependent on the timely request for financial assistance from PIYSB and disbursement of funds from the SSG.

PIYSB derives financial flexibility from the SSG, given its role in supporting the State’s private higher-education objectives. RAM’s recent interaction with senior officials of the State Government lends further support to our view that the State will continue to provide PIYSB with financial assistance should the need arise.

Analytical contact                                        Media contact
Chan Yisze                                                    Padthma Subbiah
(603) 7628 1111                                            (603) 7628 1162
yisze@ram.com.my                                       padthma@ram.com.my