MARC AFFIRMS ITS AAAID(S) RATING ON KUCHING PORT AUTHORITY’S RM180.0 MILLION BaIDS

Feb 28, 2012 -

MARC has affirmed the AAAID(S) rating on Kuching Port Authority’s (KPA) RM180.0 million Al-Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS) with a stable outlook. The rating is aligned to MARC’s credit rating of the Sarawak State Government on the basis of a letter of support from the Sarawak State Government (SSG) for the BaIDS. The rating also reflects the sufficiency of contingency arrangements for the provision of liquidity in the form of committed back-up credit facilities and the covenanted requirement for the state-owned port authority to notify the State Financial Secretary to provide funding support for debt service after the credit facilities have been fully drawn. The rating on the BaIDs would be affected by a change in the credit quality of the state of Sarawak and/or a weakening of SSG’s support.

The rating on Sarawak reflects the state’s strong financial position, rich natural resources and fairly strong financial management practices. The government’s financial position remains adequate with a sustained surplus of RM3.3 billion in 2009, albeit lower than the preceding year’s RM5.2 billion due to a decline in revenue collection in 2009 and a sharp 31% fall in non-tax revenue. Expenditure remains stable with total outlays amounting to RM1.3 billion in 2009 against the RM1.2 billion incurred in the preceding year. However, MARC considers the Sarawak economy to be somewhat vulnerable to a downturn in the export of its natural resources. A further decline of commodity prices from current levels may weaken Sarawak’s economic growth in line with a global slowdown as global growth is expected to moderate from 5.1% in 2010 to an estimated 4.0% in 2011 and 2012 respectively, according to IMF forecasts.

KPA is a statutory body under the purview of the Sarawak State Government which manages and operates import and export activities through Kuching Port. Kuching Port mainly serves Kuching, the capital of Sarawak, due to geographical limitations and its location at the river mouth near the city. As such, it is the second busiest port in Sarawak in terms of cargo volume handled per year and generally caters to exports of manufactured goods and imports of consumer goods. As such, cargo volume is dependent on the state’s economic growth and typically driven by higher consumer spending power due to the lack of proximity to major industrial zones.

As such, in line with the recovery of the state’s economy which grew 5.4% (2009: -1.3%), for the financial year ended December 31, 2010, KPA’s revenue grew 12.4% to RM55.4 million (2009: RM49.3 million). Cargo throughput in 2010 rebounded to 8.12 million tonnes, a growth of 17.3% after it contracted 8.3% in the preceding year. In line with the higher revenue, KPA’s profits grew to RM7.0 million (2009: RM1.0 million) while its cash flow from operations (CFO) improved to RM31.6 million (2009: RM20.0 million). The financial improvements were in part due to better operating efficiencies after KPA outsourced operations of its port to third parties and significantly lowered financial costs in the last five years.

For the eight month period ending August 31, 2011 (8M2011), KPA continued to record improvements in its cargo throughput with total cargo handled of 5.64 million tonnes. Revenue and pre-tax profit in 8M2011 was RM44.8 million and RM6.3 million respectively and KPA’s results appear to be in line to surpass its previous year’s results. KPA also recorded CFO of RM20.1 million and free cash flow of RM17.7 million in 8M2011 indicating a stable liquidity position for 2011. During 2011, KPA secured an additional credit facility from Public Bank Berhad after drawing down RM17 million from its previous credit facility from CIMB Bank Berhad and MIDF Amanah Investment Bank Berhad. Looking at the company’s available cash balance of RM19.6 million as at 8M2011 and its scheduled repayment of RM30 million in December 2012, MARC believes that KPA will utilise its available credit lines to meet its debt obligations.

Contacts:
Sandeep Bhattacharya, +603-2082 2247/ sandeep@marc.com.my ;
David Lee, +603-2082 2255/ david@marc.com.my ;
Jason Kok, +603-2082 2247/ jason@marc.com.my .