MARC has reaffirmed the AAA rating of Special Port Vehicle Bhd’s (SPV) RM1,310.0 million nominal amount asset-backed serial bonds facility. MARC is of the view that the credit quality of the transferred receivables is closely aligned to the credit worthiness of the Government of Malaysia (GOM) who has issued a letter of support affirming the economic importance of the Port Klang Free Zone (PKFZ) development project. As a Ministry of Transport agency, Port Klang Authority (PKA)’s budget, including capital spending, requires governmental approval and is integrated into the federal budgetary process. The rating also reflects a protective issue structure which substantially mitigates liquidity risk during the tenure of the facility.

SPV is a special purpose, bankruptcy remote company, incorporated for the purpose of acquiring the future receivables (including interest) amounting to RM1,699.63 million forming the balance consideration price under a Sale and Purchase Agreement (S&P) dated November 2002 between Kuala Dimensi Sdn Bhd (KDSB), the originator and PKA, the obligor, in respect of the sale of a 999.5-acre piece of land at Pulau Indah. Under the S&P, KDSB is required to undertake land reclamation and infrastructure works including drainage, main access road, bridge and the laying of water pipes.

PKA is the coordinator and regulator of port operations within Port Klang and the developer of PKFZ. The development of PKFZ is in line with the Government’s policy to develop Port Klang as a regional distribution hub as well as a commercial, industrial and logistics centre. PKFZ is expected to increase Port Klang’s attractiveness as a transshipment hub. The Ministry of Transport (MOT) has, vide its letter dated 28th May 2003, confirmed the government approved purchase of the land by PKA, the development of PKFZ on the said land and PKA’s obligation to pay the remaining sum over a 15-year period (including a 4-year moratorium period from issuance) as stipulated in the S&P.

Reclamation works were completed by end December 2003 while the remaining basic infrastructure works including the construction of a dual carriageway and two bridges were completed within the stipulated 24 months period under the S&P. The construction of the monsoon drains and water supply system which were also under the S&P now forms part of the works under the development of PKFZ due to revised design specifications by PKA following their decision to develop Port Klang Free Zone/Transshipment Megahub (PKFZ) in one single phase instead of two phases. The revised works have since been fully completed within the time allowed by PKA. With the completion of the reclamation and infrastructure works, the downside risk associated with construction has been eliminated.

Liquidity risk is mitigated through the pre-funding of coupons in the Coupon Service Payment Account (CSPA) to cover for coupons due and payable during the moratorium period prior to the first repayment from PKA in June 2007. As at 30th September 2006, the balance in the CSPA amounted to RM80.8 million which is more than sufficient to cover the said coupon payments. Liquidity risk arising from unforeseen delays in payments from PKA is mitigated through the maintenance of a six months bond servicing reserve in a Finance Service Reserve Account amounting to RM36.4 million; a timing buffer between the projected date of receipts of funds from PKA and the scheduled repayment date of the bonds; and the excess spread between the interest earned on the deferred payment by PKA and interest payable on the bonds. PKA has represented that it will request the Government to remit any budget allocation of development funds directly into a Special Reserve Account which will then be swept into SPV’s Collection Account.