Kertih Terminals Sdn Bhd’s (KTSB) rating has been reaffirmed at MARC-1, reflecting the company’s resilient financial position, declining debt leverage level and stable cash flows generated from the long term contracts with the terminal users.

KTSB was incorporated to undertake the construction and operation of a Centralized Tankage Facility (CTF) for PETRONAS’ Integrated Petrochemical Complex (IPC) in Kertih, Terengganu. The presence of PETRONAS as a shareholder for KTSB and the petrochemical ventures set up in Kertih, provide important support for the viability of the CTF, enabling the users to realize substantial cost savings through the reduction in infrastructure investment and operating expenses.

The sponsors of the petrochemical venture companies, which include PETRONAS and British Petroleum, are reputable multinational companies, occupying leading positions in a wide range of businesses with strong financial profiles. Credit risk is thus mitigated.

The terminal usage agreement requires the users to pay a minimum warehouse charge (MWC) irrespective of the rate of utilization for 20 years, hence ensuring a steady stream of income over the tenure of the facility. By revising the MWC annually based on changes in the Consumer Price Index, Utilities Average and wages, price risk is substantially mitigated. Revenue growth, thus, will be driven by the escalation factor on the warehousing charges and the growth in tank trunk loading operations. The likelihood of early termination by the users is remote given that the terminals are dedicated to each client and penalties are imposed on the respective user in the event of early termination.

Revenue remained strong and continued to trend upwards over the last five years due to full utilization of the storage tanks. Profitability indicators remained robust while operating margin remained high at above 60.0% for FY2004.

Subsequent to the company’s maiden dividend payout, DSCR stood at 1.7x, still comfortably above the covenanted level of 1.1x. Despite delayed payments from one of its users, Vinyl Chloride (M) Sdn Bhd (VCM) due to an internal restructuring, KTSB’s cash position was not adversely affected as evident by its strong cash flow interest coverage ratio and substantial cash coffers.

Given the maturity of the RUF by December 2004 and the declining debt leverage position, the company is expected to be debt free owing to the project’s self funding nature. Overall, the company’s financial position appears strong and resilient moving forward.