FW: RAM Ratings reaffirms Pendidikan Industri YS’s sukuk rating

 

Published on 21 Nov 2018.

RAM Ratings has reaffirmed the enhanced AA1(s)/Stable rating of Pendidikan Industri YS Sdn Bhd's (PIYSB or the Company) 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 and expected support from the Selangor State Government (SSG or the State). In February 2011, the Selangor State Executive Council approved a RM205.5 million allocation for all repayments on the BaIDS between 2012 and 2022. The State has been settling all the principal and profit payments due on behalf of PIYSB since January 2012, including those falling due in January 2019, which have been credited into the finance service and redemption account (FSRA). 

The SSG's intention of supporting PIYSB is detailed in a strongly worded Letter of Support (LoS). Although not an outright guarantee, the document states that the SSG 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. PIYSB provides educational services via Universiti Selangor (Unisel), and is wholly owned by the State via Menteri Besar Selangor (Pemerbadanan) (MBI). Given its role in supporting the State's private higher-education objectives and based on RAM's recent interaction with senior SSG officials, we believe that the State will continue extending financial assistance to PIYSB if needed. 

Without the LoS, PIYSB's stand-alone credit profile is very weak. In fiscal 2017 and 1H fiscal 2018, Unisel remained in the red with its average student population below its break-even level of 12,700 students. The university's average student population stood at a respective 9,370 and 9,640 in 2017 and 1H 2018, despite efforts to increase its enrolment. As such, PIYSB has not been able to generate sufficient cashflow to meet its current operational requirements and financial payments. 

In view of its role in supporting the State's higher-education objectives and the keenly competitive environment, a significant upward revision in Unisel's fees is deemed unlikely despite its hefty costs. We expect PIYSB to remain mired in losses and continue relying on financial assistance from the SSG to meet its operational cashflow requirements and financial payments.

The dispute between PIYSB and its previous hostel operator, Jana Niaga Sdn Bhd (JNSB), was resolved in December 2017. PIYSB has agreed to pay JNSB a settlement amount of RM19.75 million, besides taking over JNSB's RM51.70 million of liabilities to Bank Pembangunan Malaysia Berhad, which will be borne by the State. In September 2017, the State approved an allocation to the Company for the repayment to BPMB, from 2017 to 2021. In the meantime, the Malaysia Anti-Corruption Commission's (MACC) investigations on the alleged misappropriation of payments by MBI to JNSB (in August 2017) have yet to be concluded. 
 
PIYSB is highly leveraged. As at end-June 2018, its gearing ratio had deteriorated to 1.32 times (end-December 2017: 0.80 times) amid its higher debt level following the settlement of its dispute with JNSB. As at the same date, PIYSB held RM35.15 million of cash and bank balances against RM25.00 million of short-term debts. The Company's liquidity position is expected to stay vulnerable as it relies on timely requests for financial assistance and fund disbursements from the SSG. 

Analytical contact
Aw Wei Xuan 
(603) 7628 1198
weixuan@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

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