MARC has affirmed its AAA_IS rating on Gas District Cooling (Putrajaya) Sdn Bhd’s (GDC Putrajaya) RM300.0 million Al-Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS) with a stable outlook. The current outstanding of RM50.0 million BaIDS is payable in December 2022.

The rating incorporates a three-notch uplift for parental support from Putrajaya Holdings Berhad (PJH), which carries a AAA/stable rating from MARC. The rating also considers GDC Putrajaya’s monopoly position as the sole supplier of chilled water for government and commercial buildings in Putrajaya.

MARC views GDC Putrajaya’s business profile as strong, characterised by clear visibility of future earnings and cash flow backed by long-term offtake agreements primarily with the government, which make up about two-thirds of the company’s business. About 70%-80% of income is considered resilient, supported by contractual fixed demand charge, while 10%-20% is exposed to variable consumption charge. Moderating the rating, however, is the absence of a full cost pass-through mechanism with regard to the government offtake agreements, which creates some risk that operating profit margins could fluctuate. However, the company will seek to incorporate such mechanism in future contracts with the government in their renewal negotiations that are currently ongoing. In this regard, MARC notes that 67% of the government contracts will expire in May 2021, but views non-renewal risk as low considering GDC Putrajaya’s monopoly for district cooling in Putrajaya and its long-standing relationships with the government offtakers since 1999.

With respect to gas price, this now follows a contract price formula that is reset every three months based on the Malaysia Reference Price effective July 1, 2020. There remains a timing mismatch between gas price revisions and tariff increases (every three years), exposing GDC Putrajaya to fuel price volatility particularly in the absence of a cost pass-through mechanism in the government offtake agreements at present. This is expected to be addressed in the renewal negotiations.

For 1H2020, revenue rose 7.3% y-o-y to RM114.9 million, supported by an increase in tariff beginning January 1, 2020. Actual delivered chilled water, however, fell 10.0% y-o-y, largely due to closures or underutilisation of office buildings following the imposition of the Movement Control Order (MCO) to contain the COVID-19 pandemic. Operating profit margin broadened to 27.2% in 1H2020 from 20.6% in the previous corresponding period, bolstered by the growth in revenue and stable operating costs during the period. As at end-June 2020, GDC Putrajaya was in a net cash position with cash of RM75.4 million and debt of RM50.3 million.

The stable outlook is premised on MARC’s expectation that there will be no material change to GDC Putrajaya’s business and financial profile over the next 12-18 months and that parental support will be forthcoming should the need arise.

Contacts:
Ati Affira Kholid, +603-2717 2941/ affira@marc.com.my 
Hafiza Abdul Rashid, +603-2717 2955/ hafiza@marc.com.my