RAM Ratings has reaffirmed the AA3/stable rating of Sabah Ports Sdn Bhd’s (Sabah Ports or the Company) RM80 million

Published on 02 December 2016

RAM Ratings has reaffirmed the AA3/stable rating of Sabah Ports Sdn Bhd’s (Sabah Ports or the Company) RM80 million Bai’ Bithaman Ajil Debt Securities (2007/2017) (BaIDS), premised on the Company’s critical position as Sabah’s main port operator as well as its stable debt-servicing ability. In line with our expectation, current weak economic conditions had resulted in Sabah Ports handling lower cargo and container throughput at wharves, which had eroded its top line by 4.5% y-o-y. Sabah Ports is inherently exposed to economic cycles and commodity movements in the State, especially palm oil and petroleum, which make up approximately 70% of the Company’s cargo throughput.

Meanwhile, state and federal government plans to transform Sapangar Bay Container Port into a transshipment hub, may boost Sabah Ports’ profile from a hinterland-based service provider to that of a regional transshipment port operator. While Sabah Ports has typically been prudent in capital spending, these plans will necessitate capex of up to RM1.5 billion over the next 2-3 years (RM1.13 billion of which will be government-funded) – a stark step up from approved capex under the Company’s current Privatisation Agreement (a cumulative RM1.36 billion over 30 years) – and may significantly alter its financial risk profile. We will continue to monitor developments on this front and reassess credit implications as details are made available.

On another note, Sabah Ports’ leverage indicators are viewed as healthy, with its average adjusted operating cashflow debt coverage ratio expected to come in at 0.29 times in the next 2 years after factoring in committed capex and additional bank borrowings. With ample cash and cash equivalents amounting to RM214.11 million as at end-December 2015, Sabah Ports is deemed to have sufficient liquidity to fund the Company’s final debt obligation of RM10.0 million under the BaIDS, falling due on 31 March 2017.

Analytical contact                                        Media contact
Nurhayati Sulaiman                                       Padthma Subbiah
(603) 76281040                                             (603) 7628 1162
yati@ram.com.my                                         padthma@ram.com.my