MARC has reaffirmed the rating of AAA(s)ID to Kuching Port Authority’s (KPA) RM180 million Al-Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS). The rating reflects the strength of the support provided by the State Government of Sarawak, through a Letter of Support, which ensures the timely and full redemption of the BaIDS. Hence, the current rating of KPA reflects the credit strength of the state of Sarawak which is superior to KPA’s credit standing. The rating carries a Stable Outlook.

Sarawak state’s economic growth has been strong averaging 5.4% per year during the period 2000-2005, compared with an average growth of 5.0% per year for the whole of Malaysia during the same period. The state’s GDP was forecasted to grow by 5.5% in 2006 (2005: 5.7%). As a resource-rich state with a strong economic base, Sarawak’s underlying creditworthiness is based on its sound budgetary performance.

On average, over the last four years, the state has recorded operating balances in excess of 10% of total revenue. Mitigating these factors are the contingent liabilities, which pose the largest risk to Sarawak’s credit profile, largely due to the state government’s involvement in the X-Fab Sarawak Sdn Bhd [formerly 1st Silicon (Malaysia) Sdn Bhd] project. Nevertheless, Sarawak’s revenue outlook and its ability to sustain robust development expenditure are perceived positively and it was forecasted to have a surplus of RM50.0 million in 2006.

KPA is currently Sarawak state’s premier port serving and supporting the state’s economy. The port’s activities are much dependent on the economic condition of the state and to some extent the global economy. Cargo throughput at Kuching port has continued to record increases, albeit at a slower rate of growth in 2005, reaching its highest ever level during the past 10 years in 2005 when total throughput increased by 5.0% (2004: 9.7%) to 7.48 million tonnes. The growth was mainly due to strong performance in its container and liquid bulk cargo businesses.

Nevertheless, KPA’s revenue for FY2005 continued its gradual decline since FY2003. The decline in revenue is the result of the slower increase in cargo volume recorded at the port in 2005, especially for break bulk, liquid bulk and dry bulk cargo. Consequently, the lower revenue and the consistently high total operating expenses have resulted in the operating margin of KPA to remain just below 30% in FY2005 as opposed to 35% recorded in FY2003. Nevertheless, with financing costs declining to RM15.5 million in FY2005 from RM21.0 million in FY2004, KPA has recorded a pre-tax profit of RM1.3 million in FY2005 compared with a pre-tax loss of RM4.6 million in FY2004.

Despite the fall in revenue, cash flow coverage improved during FY2005. This is supported by improving receivables position, lower repayment of borrowings and financing costs, and increases in other operating income during the year. In addition, noteholders’ interests are protected through the availability of liquidity/credit support in the transaction structure in the form of revolving credit/overdraft facilities (RC/OD) of an aggregate amount of RM27 million and support from the state government. The RC/OD facilities shall be drawndown to cover any shortfall for the purpose of meeting the redemption of either the primary or secondary notes.