TEXT - S&P affirms Ajman Sewerage (Private) Co. Ltd ratings

Mon Nov 19, 2012 11:38am EST

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(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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