KUALA LUMPUR (Apr 2): RAM Ratings has reaffirmed the AAA/Stable rating of Prasarana Malaysia Bhd’s RM5.468 billion nominal value redeemable guaranteed serial fixed-rate bonds (2003/2016) (guaranteed bonds), although it expected the public transport operator to post bigger losses this year.

In a statement released today, RAM said the rating reflects Prasarana’s strategic importance as the owner and operator of key public transport infrastructure (rail and bus) in the Klang Valley. Prasarana is a wholly owned subsidiary of the government of Malaysia.

“As the owner and operator of the country’s key public transport infrastructure, we are of the view that the group is an entity that is ultimately backed by the government of Malaysia. Prasarana qualifies as a dependent entity under our rating criteria for government-linked entities; the credit risk of the group mirrors that of the government. The government’s support is further underlined by its guarantee in respect of all of Prasarana’s debt, including the rated bond,” it said.

RAM expected Prasarana’s losses to widen, further attributed to higher finance costs. Nonetheless, it said the government would continue to provide financial support to cover the group’s funding requirements.

Prasarana remained in the red for the financial year ended Dec 31, 2014. The group has been recording operating losses due to low fares, huge operating costs and unprofitable routes, given its social obligation to provide public transport services, according to RAM.

While the group’s operating loss before depreciation, interest and tax narrowed in FY14 following topline growth as ridership rose, its pre-tax losses deteriorated 28.3% year-on-year (y-o-y) to RM860.39 million, weighed down by heavy finance costs on the back of an additional RM2 billion sukuk issuance.

RAM added that Prasarana’s debt level is expected to further increase to around RM16 billion with the potential issuance of another RM2 billion of sukuk to fund the extension of the Kelana Jaya and Ampang LRT lines and existing infrastructure development projects, resulting in its gearing ratio to increase to about 8 times.

Prasarana’s debt load had expanded to RM13.91 billion as at end of December 2014, compared to RM11.91 billion as at end of December 2013, following the issuance of RM2 billion of sukuk in 2014 to fund capex and working capital requirements.

The heavier debt burden translated into a higher gearing ratio of 7.33 times, compared to 4.32 times at the end of December in 2013, said RAM.