MARC has affirmed the rating of AAAIS on Assar Chemicals Sdn Bhd’s (“ACSB”) RM150 million Serial Sukuk Musyarakah (“Facility”). Proceeds from the Facility were utilized towards repayment of a bridging loan and to part finance the construction costs of the Independent Oil Terminal (“IOT”). The rating reflects the secured demand from the credible offtakers i.e. PETRONAS Dagangan Berhad (“PDB”) and Shell Timur Sdn Bhd (“STSB”) backed by the 30-year User Agreements (“UA”); ACSB’s protected profit margin based on the cost-recovery principle in the calculation of the IOT tariffs and the users’ significant involvement in the construction and operation of the IOT. Given the importance of the IOT as the storage terminal for petroleum products for Kuching’s consumption, ACSB and the users will ensure the timeliness and quality of all works.

The IOT project is a relocation of the existing terminals in Bintawa, Kuching to the site near Kuching Port Authority’s (“KPA”) Senari Terminal. The IOT shall consist of lube storage, bulk petroleum products and liquefied petroleum gas facilities with a design throughput of 1,100,000 kilolitres. KPA has appointed Assar Senari Holdings Sdn Bhd, the penultimate holding company of ACSB as an approved port operator at Senari which entitles the latter to collect port dues from the users.

Package 1 (site preparation works) and Package 2 (construction of jetty) have been completed. The remaining works (Packages 3 and 4), i.e. the construction/installation of storage tanks are not deemed to be highly complex and will be undertaken by experienced contractors, PPES Works (Sarawak) Sdn Bhd and Chiyoda Malaysia Sdn Bhd. As at 30 April 2006, actual progress of Package 3 was 56.0% vis-à-vis the targeted 51.9% whilst Package 4 reached a completion rate of 57.1% as compared to the targeted schedule of 55.6%. Under Package 3, the more critical work which involves the installation of storage tanks has been completed. Thus, ACSB’s management is confident that the targeted completion date of October 2006 is achievable as the balance of works such as completion of buildings, infrastructure works and installation of instrumentation is not deemed to be very difficult.

In addition, OGP Technical Services Sdn Bhd (“OGP”), a subsidiary of PETRONAS which is experienced in world class engineering projects, has been appointed as the project manager to monitor and audit the actual construction works. Hence, delay risk is viewed as manageable. Also, during the first two years after drawdown, no payment obligations are required under the Facility providing a ten-month buffer for delay in completion; viz the target completion of October 2006 whilst the first profit payment is projected to be in August 2007. The back-to-back Liquidated Ascertained Damages in the construction contract has shielded ACSB from incurring additional costs due to any delays in completion.

The project’s operating margin is protected given all agreed operational costs, financing costs and capital expenditure shall be reimbursed by the users. The reconciliation at the end of each contract year ensures that the agreed total costs incurred by ACSB will be fully recovered despite the variation in the users’ forecast and actual consumption. Hence, any potential fluctuation in tariff fees collection is substantially mitigated.

The users’ involvement in the operation are vide their shareholdings in the IOT operator, IOT Management Sdn Bhd - PDB (20%) and STSB (10%) whilst the remaining stake is held by ACSB’s holding company. The monthly operation & management fees are paid directly by the users to the operator.

ACSB is backed by its ultimate holding company, Lembaga Amanah Kebajikan Masjid Negeri Sarawak, an organisation incorporated under and governed by the Charitable Trust Ordinance, 1994.

ACSB’s offtakers are known to be prompt paymasters with strong credit profiles. It is in the interests of the users to ensure that the IOT project is completed in time for their relocation. Once operational, it is also in the users’ interests to pay tariff charges to ACSB promptly because the delays translate into additional costs to be incurred by ACSB, which will increase the tariff rates to be charged to the users during the Facility period.