MARC has affirmed the ratings of Transshipment Megahub Berhad’s (TMB) RM1,095.0 million bonds and up to RM360.0 million of CP/MTN facility at AAA and MARC-1/AAA respectively. The rating affirmation is premised on the satisfactory progress of development works of Port Klang Free Zone/Transshipment Megahub (PKFZ); the superior credit rating of the Government of Malaysia (GOM) backing Port Kelang Authority (PKA); the national importance of the project evidenced by the letter of support issued by GOM in favour of the Trustee; and a protective issue structure which imposes tight control over withdrawals from the disbursement account as well as features which substantially mitigates liquidity risk during the tenure of the bonds and CP/MTN facility.

TMB is a wholly owned subsidiary of Kuala Dimensi Sdn Bhd (KDSB), incorporated solely for the purpose of issuing RM1,095.00 million of bonds and up to RM360.0 million of CPs/MTNs; the proceeds of which to fund the development of PKFZ amounting to RM1,220.0 million for KDSB. KDSB was appointed by PKA as the turnkey developer to design, build, complete and finance the development of a 999.5-acre land in Pulau Indah into PKFZ as stipulated in the Development Agreement (DA) dated 27th February 2003 and Supplemental Agreements (SA) dated 26th May 2003 and 27th March 2004.

Development of PKFZ encompassing high-tech office, transhipment facilities including customs office check points, light and medium industrial facilities and warehouses has been provided for a period of 36 months under the DA. Progress of construction works have been satisfactory with overall completion at 87.34% as at 30 November 2005, based on a budgeted development timeframe of 24 months. The 12 months timing buffer provide sufficient time for all relevant parties to rectify any problems or technical issues, if any, before delivering the site to PKA. Based on the current progress, the expected completion date of development works is expected to be June 2006. The payment from PKA is on a deferred basis whereby the payment amount will be made in six instalment payments by June each year commencing from 2007 and ending by 2012, with the last instalment payment comprising interest chargeable on completed works essentially providing incentive for KDSB to complete the development works within the stipulated timeframe.

Construction risk is mitigated with tight control over withdrawals for payment to KDSB whereby, withdrawals from the Disbursement Account is subject to documentary evidence of development works completed via Notice of Payment submitted by KDSB to PKA on a monthly basis. This is further reinforced by the requirement to remit a portion of funds withdrawn from the Disbursement Account into the Escrow Account up to a sum of RM79.0 million. Funds in the Escrow Account will be used to cover for potential shortfall in the Collection Account should development works extend up to 39 months; 15 months beyond the projected development period; and, to cover for any increase in interest obligations under the CP/MTN programme. Should the balance in the Escrow Account be inadequate to cover for increases in funding costs, KDSB has provided an undertaking to replenish the Escrow Account up to RM36.0 million.

Given the fixed sum contract entered with the main contractor, any cost overruns shall be assumed by KDSB. In addition, the absolute legal assignment of the payment from PKA ensures that it has no right to set-off liquidated ascertained damages (LADs) against the payment amount. In the event of non-performance by the appointed contractor, TMB has the right to appoint a substitute contractor to resume, complete and deliver the site to PKA.

During the moratorium period before commencement of payment from PKA by June 2007, interest servicing obligations for the bonds and CPs/MTNs are both covered by proceeds from the bonds and CP/MTN facility. Liquidity risk is also mitigated by the maintenance of a six months coupon/interest for the bonds and CPs/MTNs in the Debt Service Reserve Account; a four-month timing buffer between the projected date of receipt of funds from PKA (assuming payment is made every June) and the scheduled principal repayment of the bonds (every November) from 2007 to 2012; and the excess spread between the interest earned on the deferred payment by PKA and interest payable on the bonds.