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

Nov 23, 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 public information rating on the Sarawak state government (SSG) on the basis of its statutory body status as well as a letter of support provided by the SSG for the BaIDS and demonstrated evidence of support. The rating also reflects the adequacy of contingency arrangements for liquidity support in the form of committed back-up credit facilities and the requirement for the state-owned port authority to notify the State Financial Secretary to provide funding support for debt service after available credit facilities have been fully exhausted. A change in the rating on the BaIDs would mainly be driven 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 overall financial position supported by the development of natural resources, particularly petroleum and natural gas. Sarawak recorded an improved fiscal surplus of RM2.2 billion in 2010 (2009: RM0.9 billion) on the back of higher revenue and contained management and operation costs. The state’s economy expanded by an estimated 4.5% in 2011 (2010: 4.5%), driven by the improved performance of the manufacturing and mining (oil and gas) sectors. Sarawak’s economy going forward will depend on investments by both domestic and foreign entities in several major infrastructure projects under the state’s Sarawak Corridor of Renewable Energy (SCORE) initiative. As at August 2012, the total investment into SCORE stands at RM29.1 billion. Given its position as a net commodity exporter, the state’s economy could face some slowdown should global commodity prices continue to decline at prevailing low levels. Additionally, Sarawak’s high dependency on food imports to satisfy domestic demand makes it vulnerable to volatility in international food prices and the pass-through effects to domestic prices.

As a state port authority established to operate the Kuching Port, KPA is monitored and supervised by the SSG. The development of port facilities is funded through state-approved external borrowings. All of its earnings are retained and used to meet the state’s needs for port services. The authority has funded its capital investments entirely through external borrowings; however, as a result of cash flow mismatches in relation to debt servicing, the port authority’s ability to meet its debt service obligations on the BaIDS conditioned upon KPA securing new credit facilities with the support of the state government. 

For the financial year ended December 31, 2011, KPA’s revenue fell marginally by 0.4% to RM55.2 million (2010: RM55.4 million) despite a growth of 4.7% in cargo throughput to 8.50 million tonnes (2010:  8.12 million tonnes). Notwithstanding the relatively flat revenue and marginal contraction in operating profit margin to 33.9% (2010: 34.2%), KPA managed to sustain its rising trend of pre-tax profit to RM7.9 million (2010: RM7.0 million). The higher pre-tax profit is attributed to lower financing costs as a result of the amortisation of its borrowings. In 2011, KPA met its total debt obligations of RM42.9 million using its internally generated cash flow from operations of RM28.1 million (2010: RM31.6 million) and a drawdown of RM15.0 million from its credit facilities.

For the seven-month period ending July 31, 2012 (7M2012), KPA handled 5.15 million tonnes of cargo volume. Based on revenue and pre-tax profit of RM34.7 million and RM5.4 million respectively recorded in 7M2012, KPA’s performance for the full year is expected to surpass its 2011 results. For the same period, KPA posted CFO of RM18.7 million and free cash flow of RM18.3 million, which is in line with its historical figures. KPA is planning to draw down RM13.0 million under its RM25.0 million undrawn credit facility, which act as a buffer against debt service shortfalls, to meet its upcoming principal repayment and profit payment totalling RM34.2 million due on December 27, 2012. MARC expects KPA to continue extending its debt maturity profile by refinancing its maturing BaIDS with drawdowns under new credit facilities. The rating outlook on the BaIDS is aligned to that on the Sarawak state’s public information rating.

Contacts:

Koh Shu Yunn, +603-2082 2243/ shuyunn@marc.com.my;

Jason Kok, +603-2082 2248/ jason@marc.com.my;

David Lee, +603-2082 2255/ david@marc.com.my.