SAJH, a subsidiary of RUB, holds a 30-year concession commencing in March 2000 awarded by the Johor state government to supply treated water to consumers in the state.
MARC's last rating action on SAJH had been to change its rating outlook to developing from stable in January 2009 to reflect operational and regulatory uncertainties faced by the water concessionaire in light of the restructuring of the water sector. MARC considers the recent development to be positive as it removes a substantial amount of uncertainty regarding the restructuring of the water sector and corresponding credit implications for SAJH's rated debt.
Under the terms of the master agreement, SAJH agreed to transfer all of its water assets, including capital works, at one time book value and all corresponding liabilities, including the RM1.28 billion BaIDS to PAAB.
The agreement is conditional upon fulfilment of conditions precedent which includes, among others, the approval of all BaIDS holders for the absolute transfer of all SAJH's rights and obligations under the BaIDS to PAAB.
The conditions precedent to the master agreement is to be fulfilled within 180 days from the date of the agreement (ie within the third quarter of 2009), failing which the agreement will lapse with the parties involved having no claims against each other.
Concurrently, SAJH had entered into a facility agreement with PAAB for the right of use of assets over a 30-year period in consideration for the payment of lease rental on existing assets taken over by PAAB as well as new assets developed and funded by PAAB.
SAJH will then migrate to the new licensing regime governed by the Water Services Industry Act (2006) as a licensed water operator, subject to compliance with the National Water Services Commission guidelines and regulations.
MARC said positive placement indicated that the current rating could be raised upon final consummation of the announced agreements and successful novation of the BaIDS to PAAB, a wholly owned company of the Minister of Finance Incorporated.