RAM Ratings has reaffirmed the AA1(s)/Stable rating of Samalaju Industrial Port Sdn Bhd’s (Samalaju or the Company) Sukuk Murabahah programme of up to RM950 million (the Sukuk). The rating is premised on an unconditional and irrevocable corporate guarantee extended by Samalaju’s parent company, Bintulu Port Holdings Berhad (BPHB, rated AA1/Stable/P1).

Published on 27 Feb 2017.

RAM Ratings has reaffirmed the AA1(s)/Stable rating of Samalaju Industrial Port Sdn Bhd’s (Samalaju or the Company) Sukuk Murabahah programme of up to RM950 million (the Sukuk). The rating is premised on an unconditional and irrevocable corporate guarantee extended by Samalaju’s parent company, Bintulu Port Holdings Berhad (BPHB, rated AA1/Stable/P1). 

In view of BPHB’s solid relationship with the Government of Malaysia – given the latter’s shareholdings in BPHB through various government agencies, the Sarawak Government and Petronas – the federal and state governments are seen as having an incentive to provide the Company with financial assistance. This would facilitate the success of the Sarawak Corridor of Renewable Energy while ensuring Samalaju meets its financial and operational obligations. We believe that the Company will continue to derive financial flexibility from BPHB and both the federal and state governments.

Samalaju will be the operator of the Samalaju Port (the Port) upon its expected completion by mid-2017, under a 40-year contract. Construction of Phase 1 of the deep-sea port – which will have a handling capacity of 18 million tonnes - at a cost of RM1.9 billion is currently ongoing. Once completed, it will serve as a dedicated port to the energy-intensive players at the Samalaju Industrial Park (the Samalaju Park). 

The overall construction of Samalaju Port (the Port or the Project) as at December 2016 is at 95% against the scheduled progress of 99%, with delays stemming from slower than expected progress in its capital dredging works. That said, the Company is targeting to meet its Principal Agreement (PA) requirement i.e. to commence operations by June 2017, as the bulk of its construction has been completed. Meanwhile, on the costs front, the Company has incurred RM10 million in costs overruns as at November 2016 owing to design changes, which was sufficiently covered by the liquidated damages (LDs) provisions under the contracts with the contractors.

However, PA between the Sarawak government and BPHB provides for its termination if the construction of the Port is not completed by June 2017 in the absence of extensions. We have been informed by Samalaju that no extension has been requested to date. The likelihood of the PA’s termination in this regard is viewed as low given the Port’s importance to the State in ensuring the success of the SCORE. 

We have assumed that the Port will record a lower throughput when it becomes operational. For the abovementioned reasons, we foresee Samalaju incurring further debt (in the absence of shareholder support), with its gearing ratio under our stressed case projected to peak at a high 2.55 times over the next 5 years, while its funds from operations (FFO) debt coverage will hover at a weak 0.05 times (base case: 1.79 times and 0.14 times, respectively). Samalaju’s FFO is not envisaged to be adequate to service its annual finance obligations.

Apart from operational risk, Samalaju is exposed to regulatory risk as the Port’s tariffs had been revised and gazetted by the State Government in December 2016. We do not discount further revisions in assumptions on tonnage and pricing prior to the commissioning of the Port. The Company’s earnings and cashflow will come under further pressure should the gazetted tariffs be revised lower.

Analytical contact
Adeline Poh
(603) 7628 1021
adeline@ram.com.my

Davinder Kaur Gill
(603) 7628 1118
davinder@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my