RAM Ratings reaffirms A1 rating of Lumut Maritime Terminal’s BaIDS

Published on 29 October 2012

RAM Ratings has reaffirmed the A1 long-term rating of Lumut Maritime Terminal Sdn Bhd’s (“LMT” or “the Company”) RM60 million Bai’ Bithaman Ajil Islamic Debt Securities (2004/2017) (“BaIDS”), with a stable outlook. LMT owns and operates a multi-purpose port facility (“the Terminal”) while providing operations and maintenance (“O&M”) services to Lekir Bulk Terminal Sdn Bhd’s (“LBT”) deep-water bulk jetty, which at present caters to the coal-unloading requirements of TNB Janamanjung Sdn Bhd (“TNBJ”). The Company is also involved in the development and sale of an 885-acre industrial park known as Lumut Port Industrial Park (“LPIP”), located next to the port.

LMT’s credit strength remains anchored by the stable cashflow derived from its O&M agreement with LBT, as well as its commendable operational track record. Under the agreement, the Company receives fixed payments from LBT regardless of the volume of coal handled at the jetty. Notably, cashflow from the provision of O&M services alone is expected to adequately cover LMT’s yearly debt-servicing obligations on the BaIDS. Furthermore, additional cashflow generation is expected from 2015, following the formalisation of a new O&M agreement between the Company and LBT in respect of the coal-unloading requirements of TNBJ’s new 1,000-MW coal-fired power plant.

Under a Concession Agreement (“CA”) with the Perak Government, LMT has been granted exclusive rights to the Terminal and within a 30-km radius of the port for 20 years until July 2015. The CA may be extended subject to the mutual agreement of LMT and the State Government. It, however, remains to be seen whether the CA will be extended, as the Perak Government in late 2010, approved Vale International SA’s plan to build its own jetty designated for the transhipment of the latter’s iron ore within the area. While the Company might be exposed to competition from new port facilities in the long run should the CA not be extended, we opine that competition is unlikely to be intense as the State’s industrial base is relatively less robust than major industrial hubs such as Klang Valley and Penang.

The rating is moderated by the limited growth potential of LMT, a small port catering to a niche market of industrial customers within the LPIP and the primary hinterland of central Perak, with an average cargo throughput of 3.19 million freight weight tonnes (“FWTs”) over the past 4 years. We understand that given the existing port facilities, cargo mix and operational methodology, the Terminal’s maximum annual capacity is just over 4 million FWTs of throughput. Notably, capital expenditure (“capex”) projected by the management is moderate, consisting of recurring capex for the upgrading and maintenance of port facilities. Should the management embark on any large-scale expansion plan, LMT’s credit profile would need to be reassessed.

Media contact

Chin Wynn

(603) 7628 1170

chinwynn@ram.com.my