MARC AFFIRMS ITS ISSUE RATINGS ON PKFZ-RELATED DEBT ISSUANCES; OUTLOOK NEGATIVE

Aug 12, 2011 -
MARC has affirmed the following issue ratings on the outstanding bonds and notes backed by deferred payment receivables due from Port Klang Authority (PKA) for the acquisition cost of land and development works in connection with the Port Klang Free Zone (PKFZ) project:



1. Long-term rating of AAA on Special Port Vehicle Berhad’s (SPV) RM1,310.0 nominal amount asset-backed serial bonds facility; and
2. Long and short-term ratings of AAA and MARC-1 on Transshipment Megahub Berhad’s (TMB) RM1,095.0 million fixed rate serial bonds and RM360.0 million Commercial Papers/Medium Term Notes (CP/MTN) Programme.

The outlook on all of the aforementioned issue ratings remains negative.
The affirmed ratings reflect uncertainty over long-term government support for the above mentioned debt issuances which continues to be fuelled by negative public sentiment surrounding the bailout of bondholders and the ongoing legal proceedings by Port Klang Authority (PKA) against Kuala Dimensi Sdn Bhd (KDSB), the turnkey contractor and vendor of the land for the PKFZ project.

The PKFZ project is a federal government initiative to transform Port Klang into a regional transhipment hub through the development of a 1,000-acre commercial and industrial zone in Pulau Indah, adjacent to Port Klang’s Westport. Subsequent to the initiation of the project, the government, via the Ministry of Transport (MOT), issued four letters of support for deferred payment receivables from PKA for the land purchase and development costs of PKFZ. PKA is under the direct purview of the MOT. The issuers are special purpose entities (SPEs) established for the sole purpose of issuing debt backed by receivables from PKA. While SPV’s bonds are backed by receivables from PKA for the acquisition of leasehold land on Pulau Indah from KDSB, TMB’s bonds and notes are backed by PKA’s deferred payment obligations in respect of project development works undertaken by KDSB.

PKA has been meeting its deferred payment obligations to the SPEs, facilitating the retirement of debt issued by two other SPEs, namely, Valid Ventures Berhad and Free Zone Capital Berhad and continued paydown of SPV and TMB’s debt maturities. More recently, on June 30, 2011, PKA made payments of RM150 million and RM230 million to the respective designated accounts of SPVB and TMB. MARC considers the payment performance history of PKA to date as evidence of the federal government’s commitment to honour the letters of support issued by the MOT in respect of the rated debt. At the same time, the SPEs’ non-compliance of the required six-month build-up of reserves prior to the redemption of upcoming debt maturities and the continuing controversy over the validity and enforceability of the letters contributes to uncertainty surrounding future government support. Any changes to the support assumptions may lead to a steep downgrade of the issue ratings.

Contacts:
Ahmad Tajuddin, +603-2082 2256/ tajuddin@marc.com.my;
Jason Kok Ching Wui, +603-2082 2258/ jason@marc.com.my;
Sandeep Bhattacharya, +603-2082 2247/ sandeep@marc.com.my