[RAM] RAM Ratings assigns AA3 and P1 ratings to PKNS's proposed sukuk, reaffirms existing issue rating

RAM Ratings has assigned respective long- and short-term ratings of AA3/Stable and P1 to Perbadanan Kemajuan Negeri Selangor’s (PKNS or the Agency) proposed RM3 bil Islamic Medium-Term Notes (MTN) Programme and proposed RM1 bil Islamic Commercial Paper (CP) Programme. Concurrently, the AA3/Stable rating of its RM1.7 bil Islamic MTN Programme has been reaffirmed. The ratings reflect our expectation that the Agency will remain important to the Selangor State Government (SSG or the State) while enjoying ready extraordinary support from the State. This backing will tide PKNS over the tough COVID-19-plagued environment.  

PKNS sank into the red with an operating loss of RM61 mil in 1H FY Dec 2020, beset by market challenges and operational disruptions triggered by the pandemic. Although we anticipate some recovery in the second half, the Agency is likely to incur a full-year loss. Notably, the SSG recently extended a short-term credit line to PKNS, to ensure that the Agency has a sufficient buffer to support its operations. Given its difficulty in penetrating the high-end property segment, PKNS has decided to return to its roots as a state development agency. Going forward, it will emphasise the development of more affordable homes and cease launching new high-end property projects.  

The Agency has also experienced some setbacks in its planned divestments, i.e. land sales in Bernam Jaya, the sale of Datum Jelatek and the disposal of development rights on PJ Sentral Garden City, which had earlier been anticipated to generate RM1.2 bil in fiscal 2020 and 2021. To diversify its earnings base and generate recurring income, PKNS (via 100%-owned Worldwide Holdings Berhad) acquired a cumulative 75% stake in Pulau Indah Power Plant Sdn Bhd (PIPP), for RM131.5 mil from Maxim Global Berhad. PIPP had been set up to develop and own a 1,200 MW combined-cycle, gas-turbine power plant in Pulau Indah, Selangor. PIPP has inked a 21-year Power Purchase Agreement (to take effect in 2024) with Tenaga Nasional Berhad - its sole-off-taker - on a build, own and operate basis. 

Delayed proceeds from asset sales, persistently weak operating cashflow and outlays to fund its investment in PIPP may necessitate additional borrowings to help bridge cashflow shortfalls. PKNS’s gearing ratio may climb up to around 0.4 times by end-December 2021 – against our earlier projection of about 0.2 times. The Agency’s funds from operations debt cover is likely to remain weak at below 0.05 times in FY Dec 2021, after sinking into negative territory this year. Given the challenges against its operational performance, successful asset disposals will be critical towards bolstering PKNS’s pre-financing cashflow and reducing its dependence on debt funding.

The assigned ratings of the proposed RM1 bil Islamic CP Programme and RM3 bil Islamic MTN Programme reflect PKNS’s credit profile because these instruments rank pari passu with all of the Agency’s other senior unsecured borrowings. The proposed programmes have been set up to redeem PKNS’s maturing sukuk obligations.


Analytical contact
Amy Lo 
(603) 3385 2509
amy@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my