Najib will be asked to provide the bondholders with a RM1 billion lifeline. — file pic
KUALA LUMPUR, Nov 12 — Selangor water bondholders will urge Prime Minister Datuk Seri Najib Razak to intervene directly in the state’s water restructuring deadlock in an effort to safeguard their bonds from being further downgraded, sources revealed today.
The Malaysian Insider understands that major bondholders — including CIMB Principal Asset Management, Hong Leong Investment Bank and Great Eastern Life — have drafted a joint letter to Najib asking the federal government to bail out Syarikat Bekalan Air Selangor (Syabas) with a soft loan worth some RM1 billion.
In the letter, bondholders contend that further downgrades of debt ratings will put capital markets at risk and will seriously impede the government’s effort to promote its Capital Markets Masterplan.
Putrajaya bailed out Syabas once already last year when it gave a RM320.8 million soft loan to parent company Puncak Niaga Holdings Bhd (PNHB) in December to help settle its debts to water treatment concessionaires.
Selangor’s water players — Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), Puncak Niaga Sdn Bhd (PNSB), Syarikat Pengeluaran Air Sungai Selangor Sdn Bhd (Splash) and Konsortium ABASS — are at risk of debt payment default as water bonds approach their maturity dates.
The debt service problem started when Syabas was barred from implementing a 37 per cent tariff hike agreed upon in January 2009, after the Selangor government claimed the sole water distributor had not done enough to reduce leakages which cost the state millions.
This in turn led to payment problems between Syabas and water treatment concessionaires PNSB, Splash and Konsortium ABASS, who supply it with treated water.
All four term loan borrowers are already in technical default following their inability to maintain six months’ worth of reserves in a special account used to pay bondholders. The shortfall is understood to be some RM50 million, although this deficit could double in six months.
The technical default triggered a downgrade of the debt issuances by Malaysian Rating Corp Bhd (MARC) and RAM Ratings Services Bhd on September 8, who warned of further multiple-notch downgrades in this quarter. An industry source told The Malaysian Insider that bondholders suffered RM457 million in mark-to-market losses following the downgrade.
Syabas, Puncak Niaga (M) Sdn Bhd (PNSB), PNHB, RUN Holding SPV Bhd (RUNH), Splash, Viable Chip (M) Sdn Bhd (VCSB) and Titisan Modal (M) Sdn Bhd (TMSB) were downgraded by MARC while RAM cut ratings for Splash and Taliworks Corp Bhd subsidiaries, Destinasi Teguh Sdn Bhd and Sungai Harmoni Sdn Bhd.
A statement by MARC at the time urged federal and state governments to urgently interfere in the water industry’s restructuring negotiations to prevent a free fall of ratings in following months.
Sources also told The Malaysian Insider that bondholders intend to issue a separate letter to the Selangor state government by early December at the latest to push for a speedy resolution of the state’s water woes.
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