Wednesday, Dec 09, 2009
SINGAPORE (Dow Jones)--Malaysia's Syarikat Bekalan Air Selangor, or Syabas, faces an increased risk of default involving up to MYR3 billion in Islamic debts as it remains unable to secure tariff rate increases, according to Malaysian Rating Corp.
Among its various financial commitments to noteholders, the sole distributor of treated water to several Malaysian regions is required to keep its cash available for debt servicing at least 1.5 times its interest, principal and lease payments. Breaching such a commitment constitutes a default and gives investors the right to demand their money back.
"MARC believes that a continued inability to secure the tariff hike or compensation on Syabas' part will affect its capacity to remain in compliance with its minimum covenanted debt service cover ratio of 1.50 times," the ratings firm said in a press release Wednesday.
In a bid to conserve its cashflow, Syabas has been delaying payment to water treatment operators since January this year and has been making payment for only around 60% of its monthly billings. Consequently, two water treatment plant operators have filed lawsuits against Syabas over alleged outstanding amounts due, making it unlikely that it would be able to continue settling its billings partially.
The delay in the tariff adjustment "has resulted in a notable decline in Syabas' credit protection measures," MARC said.
"Mitigating the increased event risk faced by noteholders and pressure on Syabas' credit profile in the near term is a 20-year back-loaded interest free unsecured MYR320.8 million loan, which Syabas expects to receive from the federal government by the end of the year."
Still, under the trust deed with investors, Syabas isn't allowed to incur additional unsecured debt in excess of MYR100 million and its debt-to-equity ratio mustn't exceed 70:30. As such, the company needs waivers from noteholders for non-compliance with the covenants.
Syabas will hold an extraordinary general meeting on Dec. 21 to seek noteholders' approval for a one-time waiver of the covenant breach, MARC said.
MARC said it has maintained the developing outlook on its ratings for Syabas' Islamic debts to reflect the unresolved situation around the restructuring of the Selangor water sector and Syabas' deferred water tariff hike. It has affirmed its rating of AA-ID, its second-highest rating, for the company's medium-term notes program and MARC-1ID for its Bai Bithaman Ajil commercial paper program.
Syabas is the sole distributor of treated water for the state of Selangor and the Federal Territories of Kuala Lumpur and Putrajaya, and is partly owned by two wholly owned subsidiaries of the Selangor state government.
-By Ditas Lopez, Dow Jones Newswires; +65-6415-4044; ditas.lopez@dowjones.com
(END) Dow Jones Newswires
09-12-09 0757GMT
