KUALA LUMPUR (April 25): RAM Ratings has upgraded Selangor State Development Corp’s (PKNS) sukuk rating to AA1 based on its updated guidelines on government-linked entities, which assess expected government support and the company’s financial strength.

RAM Ratings upgraded PKNS’ RM3 billion Islamic bond programme from AA3 to AA1 with a stable outlook, and maintained its P1 rating — the highest short-term debt rating — for PKNS’ RM1 billion short-term Islamic papers.

The upgrade reflects RAM Ratings’ improved view that there is now a “very high” chance of state government support, based on its updated criteria for assessing government-linked entities.

RAM Ratings said PKNS is shifting from merely being involved in housing development to playing a bigger role in Selangor’s key strategic projects, as confirmed by Menteri Besar Datuk Seri Amirudin Shari.

This broader mandate supports the two-notch upgrade of its sukuk rating. PKNS is now involved in healthcare through Selgate Corp, power generation via the Pulau Indah plant, waste-to-energy projects under Worldwide Holdings, and plans to develop the Carey Island port — all key parts of Selangor’s Rancangan Selangor Pertama (RS-1).

Further, RAM Ratings said PKNS’ financial performance met expectations. Its debt coverage remained low but improved slightly to 0.1 times in 2023, and is expected to stay around that level until its healthcare and energy projects start generating more income.

It said PKNS has a strong balance sheet, giving it flexibility to fund its operations and investments. Its gearing stood at 0.33 times in mid-2024 and is expected to remain around 0.4 times over the next two years.

Looking ahead, PKNS’ finances could improve significantly with revenue from the Pulau Indah power plant. If its new ventures succeed and boost cash flow, RAM Ratings may upgrade its rating further.