RAM Ratings reaffirms AAA(bg) rating of Lekir Bulk Terminal's Serial Bonds

Published on 09 September 2011

RAM Ratings has reaffirmed the enhanced rating of AAA(bg) of Lekir Bulk Terminal Sdn Bhd’s (LBT or the Company) RM445 million Serial Bonds (2000/2012) (Serial Bonds), with a stable outlook. The enhanced rating of the Serial Bonds reflects the irrevocable and unconditional guarantee provided by DBS Bank Limited, which carries AAA/Stable/P1 financial institution ratings from RAM Ratings.

LBT is the owner of a deep-water jetty and its related facilities, located adjacent to TNB Janamanjung Sdn Bhd’s (TNBJ) power plant in Lumut, Perak. Under a 25-year Jetty Terminal Usage Agreement (JTUA) with TNBJ, LBT is to make available its jetty facilities – on a non-dedicated basis – for the provision of coal-handling and delivery services from ships berthing at its jetty to TNBJ’s designated delivery point.

On a stand-alone basis, LBT’s credit profile remains supported by the terms of its JTUA; the Company earns fixed payments subject to meeting specific operating parameters, irrespective of the amount of coal handled. These fixed payments adequately cover LBT’s fixed operating costs and its obligations on the Serial Bonds. Meanwhile, LBT’s operations and maintenance (O&M) come under the purview of Lumut Maritime Sdn Bhd, via a 15-year O&M Agreement that has been structured back-to-back with the JTUA’s performance requirements. Since the commencement of its jetty operations, LBT has consistently met all the key performance indicators under the JTUA, which in turn entitles it to full fixed payments.

The Serial Bonds (the only debt in LBT’s books) will be fully redeemed by 6 July 2012. Given the Company’s strong cashflow-generating ability – it is expected to generate around RM44 million of operating cashflow annually - and RM78 million of cash holdings as at end-June 2011, we do not anticipate LBT to encounter any difficulty in promptly meeting its obligations on the Serial Bonds.

While the Company’s current financial profile is not a concern, the management plans to gear up further to support its plan to transform the jetty into a multi-user bulk terminal. However, the proposed expansion has yet to take off. We highlight that the Company’s future expansion may introduce additional business risks, such as O&M risk, counterparty risk and construction risk.

Media contact
Adelia Abdul Rahim
(603) 7628 1055
adelia@ram.com.my