P R E S S A N N O U N C E M E N T
FOR IMMEDIATE RELEASE
MARC AFFIRMS ITS AAAIS RATING ON GDC PUTRAJAYA’S RM300 MILLION ISLAMIC DEBT SECURITIES
The rating affirmation factors in a three-notch rating uplift for parental support from Putrajaya Holdings Berhad (PJH) on which MARC maintains a long-term credit rating of AAA/stable. The support assessment considers GDC Putrajaya as a strategic wholly-owned subsidiary of PJH given the company’s specific role as the sole supplier of chilled water in Putrajaya and past evidence of financial support extended by the parent.
On a standalone basis, GDC Putrajaya’s credit profile reflects its strong competitive position and steady revenue stream generated under long-term offtaker agreements. However, profitability remains weak due to increasing operating costs, mainly attributed to the lack of a cost pass-through mechanism. Under the agreements, GDC Putrajaya receives demand charges irrespective of offtake volumes and variable charges based on the actual quantity of chilled water delivered. The demand charges have continued to provide GDC Putrajaya with a steady revenue stream, accounting for 70% of GDC Putrajaya’s revenue of RM104.6 million in 1H2017. The company’s profitability, however, has come under pressure since the implementation of the gas subsidy rationalisation in 2H2015. Given the absence of a fuel cost pass-through mechanism in the offtake agreements, GDC Putrajaya has had to absorb a significant increase in gas costs.
For 2016, pre-tax profit declined by 70.7% y-o-y to RM3.3 million but increased to RM15.4 million in 1H2017 following a hike in chilled water tariffs in January 2017; the tariffs are scheduled to increase by 9% every three years. MARC understands that despite the tariff hike, the utility costs of chilled water production remained higher than the variable charge rate to the government. Given the rapid increases in gas price, estimated at 16% and 14% in 2017 and 2018 respectively, GDC Putrajaya’s earnings would continue to be pressured unless it achieves a meaningful outcome in negotiations with the government to restructure the chilled water tariffs.
As at end-June 2017, GDC Putrajaya’s borrowings comprised solely of the outstanding RM100.0 million under the rated BaIDs. Its debt-to-equity ratio stood low at 0.26x while cash flow from operations (CFO) was a modest RM13.4 million. In the near term, CFO could weaken in line with lower earnings expectations; however, the company’s liquidity position as reflected by the cash balance of RM83.5 million is more than sufficient to meet the debt repayment of RM50.0 million on December 4, 2017. The final repayment of RM50.0 million falls due on December 2, 2022, providing ample time for GDC Putrajaya to build up its cash reserves.
The stable outlook is underpinned by MARC’s expectation that PJH will continue to offer GDC Putrajaya financial support in relation to the BaIDS debt obligations. Downward rating pressure could be triggered if there is a material change in the support assumption and/or if GDC Putrajaya’s credit profile significantly weakens.
Contacts: Joan Leong, +603-2717 2934/ joan@marc.com.my, Sharidan Salleh, +603-2717 2954/ sharidan@marc.com.my.
November 23, 2017
[This announcement is available in the MARC corporate homepage at http://www.marc.com.my]
---- DISCLAIMER ----
This communication is provided by Malaysian Rating Corporation Berhad (MARC) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of its opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.
© 2017 Malaysian Rating Corporation Berhad
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