KUALA LUMPUR: RAM Rating Services Bhd has reaffirmed the AAA/stable rating on Prasarana Malaysia Bhd’s RM5.468 billion bonds (2003/2016), although it expects the public transport operator to post bigger losses this year.

In a statement yesterday, 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.

“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 expects Prasarana’s losses to widen, further attributing to higher finance costs. Nonetheless, it noted that the government will 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 (FY14). 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.

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 in FY14, 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.

This article first appeared in The Edge Financial Daily, on April 3, 2015.