Water firms placed on ‘MARCWatch negative’

Wednesday June 9, 2010

By IZWAN IDRIS
izwan@thestar.com.my

It says uncertainty and hurdles in the restructuring process causing concern
PETALING JAYA: The ratings of companies involved in the water sector in Selangor were placed under “MARCWatch negative” by Malaysian Rating Corp Bhd (MARC) due to “high level of uncertainty associated with the restructuring of the sector.”
The rating action affects debt papers issued by Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), Puncak Niaga (M) Sdn Bhd, Puncak Niaga Holdings Bhd, RUN Holding SPV Bhd, Syarikat Pengeluar Air Sungai Selangor Sdn Bhd, Viable Chip (M) Sdn Bhd and Titisan Modal Sdn Bhd
“The MARCWatch placements reflect MARC’s immediate credit concerns over the impact of Syabas’ continued inability to meet in full its monthly bulk water payment obligations to water-treatment operators as the result of the former’s unresolved water tariff hike,” MRCB said in a press release yesterday.
A water tariff hike in Selangor, which was supposed to be implemented from January last year, has been deferred indefinitely.
MARC believed that “the significant hurdles” in the restructuring process, in particular the protracted negotiations between the Selangor state and water players, “do not bode favourably towards attaining a timely and orderly resolution” of the industry restructuring related issues.
Syabas staff checking for leakage at one of water-treatment plants
Hence, the rating agency believed that the contraints on “certain water-treatment operators” would become more acute in the coming quarters, as debt service reserves declined and expected revenue cash flow fell behind earlier projections.
MARCB said it would adjust the ratings “as warranted” to incorporate the shortening timeline towards potential defaults for the more severely affected issuers upon completing its review for potential downgrades.
Negotiations to resolve the water tariff issue in Selangor between the state government and water players started two years ago, but details on the progress had been sketchy at best.
Meanwhile, concessionaire Splash, which is 40% owned by Gamuda Bhd, had made a bid to take over all water concessionaires in Selangor for RM10.75bil - a higher price than the state’s last offer of RM9.2bil.
Splash’s bid seemed to have the backing of the Federal government after a revised offer in April that saw the participation of Pengurusan Aset Air Bhd (PAAB), in compliance with the asset-light condition spelled out under the Water Services Industry Act.
Under the deal offered by Splash, PAAB would pay RM8.1bil for the assets to be topped up with RM2.6bil from Splash.