KUALA LUMPUR, Sept 8 — AM Ratings has downgraded the debt ratings of Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), Destinasi Teguh Sdn Bhd (Destinasi Teguh) and Sungai Harmoni Sdn Bhd (Sungai Harmoni) from AA2 to BBB3.
The debt ratings remain on Rating Watch with a negative outlook.
To date, collections from Syabas have remained sluggish as Spash continues to receive only 45 per cent of its monthly billings to Syabas.
As a result, its outstanding receivables has ballooned to RM610 million as at end-July 2010 (from RM470 million as at end-March 2010).
Weighed against the Companys declining cash balances of around RM136 million as at end-July 2010, Splash is unlikely to be able to fill up its finance service reserve account (FSRA) minimum required balances of RM225 million by January 2011 (in 4 months time) and could potentially default on its debt dues by July 2011 (in 10 months time), in the absence of any financial support.
The BBB3 rating is anchored on expectations of indirect Federal Government, State Government and/or possible financial support from the Companys shareholders, as had happened in the past, to help allay Splashs liquidity crunch. Should such support not materialise by end-2010, there will be further downward rating pressure.
Elsewhere, given the sluggish collections by Splash, Splash has in turn delayed payments to Sungai Harmoni (its O&M operator).
Consequently, Sungai Harmoni saw a stark deterioration in its operating cashflow to about RM1 million in FYE 31 December 2009 (FY Dec 2009) from RM28 million a year ago.
The Rating Watch with a negative outlook will remain as long as the Selangor water industry restructuring efforts remain unresolved.
RAM Ratings’ Rating Watch highlights a possible change in an issuer’s existing debt rating. It focuses on identifiable events such as mergers, acquisitions, regulatory changes and operational developments that place a rated debt under special surveillance by RAM Ratings. In a broader sense, it covers any event that may result in changes in the risk factors relating to the repayment of principal and interest.
Issues will appear on RAM Ratings’ Rating Watch when some of the above events are expected to or have occurred.
Appearance on RAM Ratings’ Rating Watch, however, does not inevitably mean that the existing rating will be changed. It only means that a rating is under evaluation by RAM and a final affirmation is expected to be announced.
A “positive” outlook indicates that a rating may be raised while a “negative” outlook indicates that a rating may be lowered. A developing outlook refers to those unusual situations in which future events are so unclear that the rating may potentially be raised or lowered. — Reuters
