TEXT - S&P affirms Ajman Sewerage (Private) Co. Ltd ratings
(The following statement was released by the rating agency) Overview -- Ajman Sewerage (Private) Co. Ltd. [Ajman Sewerage] completed all enhancements under the Treatment Plant Enhancement Works contract with Veolia Water Solutions & Technologie - Emirates LLC on Sept. 22, 2012, within budget. -- For the six months to June 30, 2012, Ajman Sewerage's collected revenues increased by about UAE dirham (AED) 10 million year on year to AED75.5 million partly on the back of improved collection rates. -- We project Ajman Sewerage will report debt service coverage ratios under our criteria above 1.5x from 2012 to 2016. -- Consequently, we are affirming our 'BB' rating on Ajman Sewerage's $100 million senior secured bank loan and revising the outlook to positive from stable. -- The positive outlook reflects the possibility of an upgrade if we see a continuing track record of successful operations, in tandem with financial performance in line with our expectations. Rating Action On Nov. 19, 2012 Standard & Poor's Ratings Services affirmed its 'BB' issue rating on the $100 million senior secured bank loan issued by Ajman Sewerage (Private) Co. Ltd. [Ajman Sewerage], based in the Emirate of Ajman. At the same time, we revised the outlook on the issue rating to positive from stable. The ' 3' recovery rating on the loan remains unchanged, indicating our expectation of meaningful (50%-70%) recovery of principal for senior secured lenders in the event of a payment default. The loan has an unconditional and irrevocable guarantee of scheduled interest and principal on the debt, provided by Ambac Assurance U.K. Ltd. (not rated). Under Standard & Poor's criteria, a rating on a monoline-insured debt issue reflects the higher of the rating on the monoline and Standard & Poor's underlying rating (SPUR). Therefore, the debt rating on the loan reflects that on the SPUR. Rationale The affirmation and outlook revision follow Ajman Sewerage's completion of enhancements under the Treatment Plant Enhancement Works contract with Veolia Water Solutions & Technologie - Emirates LLC (VWSE) on Sept. 22, 2012, as well as our updated assessment of the project's financial profile. We now project that Ajman Sewerage will report debt service coverage ratios (DSCRs) (on a six-month look back basis) of 1.5x or above, under our criteria, over the period 2012 to 2016. Because revenue growth was better than we anticipated for the six months to June 30, 2012, we anticipate DSCRs for the full year, under our criteria, above 1.5x, which is higher than the 1.15x to 1.25x we had forecast previously. The project also reported improved collection rates of around 94.6% for six-month invoices of service fees to end-October 2012, compared with 92.7% a year earlier, and continued healthy liquidity totaling UAE dirham (AED) 174 million on the same date, versus AED158 million on Dec. 31, 2011. For the six months to June 30, 2012, revenues increased by about AED10 million year on year to AED75.5 million partly on the back of improved collection rates, outpacing our expectation of about AED60 million. Ajman Sewerage awarded a AED53.4 million Design & Build contract, signed on Dec. 16, 2010, to VWSE to carry out treatment process enhancement modifications over an 18-month period to achieve the treated effluent standards stipulated in the Treatment Plant Enhancement Works contract. The cost was funded primarily through AED49.4 million made available by Black & Veatch, with the balance of AED4.0 million being funded by Ajman Sewerage's own cash flows. Recovery analysis The senior secured bank loan has a recovery rating of '3', indicating our expectation of meaningful (50%-70%) recovery of principal for senior secured lenders in the event of a payment default. We base our view of recovery prospects on current collection rates. Outlook The positive outlook reflects our view that Ajman Sewerage will continue to generate DSCRs above 1.5x (on a six-month, look-back basis), under our criteria, and that the track record of successful operations will continue following the completion of the enhancement works. An upgrade would be triggered following a period of successful operation, together with cash flows and DSCRs in line with our expectations. A negative rating action could result if Ajman Sewerage encounters operational problems, which in turn have a detrimental effect on the project's financial profile. For example, this could occur if the quality of sewage treatment leads to weaknesses in operational performance, or if collection and connection rates fall short of our projections. Related Criteria And Research -- Project Finance Construction and Operations Counterparty Methodology, Dec. 20, 2011 -- Updated Project Finance Summary Debt Rating Criteria, Sept. 18, 2007 Ratings List Ratings Affirmed; Outlook Action To From Ajman Sewerage (Private) Co. Ltd. Senior Secured BB/Positive BB/Stable Recovery Rating 3 3 (Caryn Trokie, New York Ratings Unit)
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