[RAM] RAM Ratings affirms Air Selangor's Sukuk at AAA/P1

RAM Ratings has affirmed the respective AAA/Stable and P1 ratings of Pengurusan Air Selangor Sdn Bhd’s (Air Selangor or the Company) Islamic Medium-Term Notes Programme (2020/-) and Islamic Commercial Papers Programme (2020/2027), which have a combined limit of RM20 bil.

The ratings reflect Air Selangor’s strong link to the Selangor state government, its ultimate parent and the Company’s critical role as the state’s sole treated water supplier. In our view, we consider extraordinary financial support from the state government to be ‘almost certain’ if required, given the essential nature of water services and the potential social and economic consequences of service disruption. Selangor’s State Implicit Strength (SIS) is assessed as ‘superior’ – the highest category under RAM’s SIS Framework – supported by its sustained fiscal surpluses, strong net cash position and very low public debt.

Air Selangor’s liquidity remains healthy, with RM1.3 bil in cash as at end-April 2026 comfortably covering short-term debt. In FY Dec 2025, higher water demand and tariff revision lifted revenue and operating profit before depreciation, interest and tax to RM3.2 bil and RM847.7 mil, respectively. Pre-tax losses narrowed to RM290.7 mil, aided by a Non-Revenue Water (NRW) matching grant from Suruhanjaya Perkhidmatan Air Negara (SPAN, the regulator), although earnings continued to be weighed down by high depreciation, lease expenses and finance costs associated with the Company’s capital-intensive operating model.  Tariff delays or weak project execution could increase funding needs and prolong weak standalone financial metrics, although these risks are partly moderated by the Company’s established operating record and regulatory oversight.

The Company plans to invest about RM8.2 bil between 2026 to 2029, primarily to reduce NRW and expand capacity. Additional sukuk drawdowns will remain necessary to fund operations, financing and capital expenditure needs. Gearing is expected to peak at 8.5 times in 2028, while funds from operations debt coverage (FFODC) is projected to stay weak at 0.08 times, compared with 6.71 times, and 0.04 times, respectively, in 2025. While Air Selangor is expected to remain loss-making in the medium term, periodic tariff adjustments demonstrate continued regulatory support for the sector’s long-term financial sustainability.

Operational performance remained strong in 2025. NRW levels improved further and pipe burst incidents declined, reflecting the effectiveness of ongoing leak detection and pipe replacement initiatives. Although the water reserve margin eased to 15.8% as at end-April 2026 amid higher demand, it remained above SPAN’s recommended benchmark of 15%. Capacity expansion projects underway should strengthen supply reliability and gradually increase treated water capacity over time, thus moderating operating risk over the medium term.

More recently, Air Selangor revised its Sustainable Development Sukuk Kelestarian Framework Version 2.0 to include four project categories as well as expanded eligibility criteria for green, blue and social projects. The framework has been reviewed by RAM Sustainability Sdn Bhd and was accorded a Sustainable Finance Rating of Platinum.

 

Analytical contacts
Lee Jo Yee
(603) 2708 8261
joyee@ram.com.my

Davinder Kaur Gill
(603) 2708 8220
davinder@ram.com.my

Media contacts
Sakinah Arifin
(603) 2702 8212
sakinah@ram.com.my