Special Port Vehicle Bhd - 2007

MARC has reaffirmed the rating of Special Port Vehicle Bhd’s (SPV) RM1,310.0 million nominal amount asset-backed serial bonds facility at AAA.  The rating carries a stable outlook. SPV is a special purpose entity established with the sole purpose of issuing the asset-backed serial bonds, the proceeds of which were used to acquire future receivables (including interest) amounting to RM1,699.63 million. The future receivables represent the balance consideration price under a Sale and Purchase Agreement (S&P) dated November 2002 between Kuala Dimensi Sdn Bhd (KDSB), and PKA, the obligor, in respect of the sale of a 999.5-acre piece of land at Pulau Indah, which is being developed as Port Klang Free Zone (PKFZ).

The rating reflects the Government of Malaysia’s demonstrated willingness and capacity to support the deferred payment obligations of Port Klang Authority (PKA) to SPV, which represents the payment stream for servicing the rated asset-backed serial bonds. Although SPV does not benefit from a direct and timely government guarantee, the government through the Ministry of Transport has provided a letter of support for the bonds, and has more recently approved funding of up to RM4.63 billion in the form of a soft loan. The rating is further supported by a protective issue structure which provides for a six month debt service reserve amongst others.

PKA is the coordinator and regulator of port operations within Port Klang and the developer of PKFZ, a fully integrated free commercial and industrial zone. 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. PKFZ commenced its operations in November 2006.

The original plan for the development of PKFZ involved a 15-year consultancy agreement and management contract with Jebel Ali Free Zone International (JAFZI) to attract foreign investment and to promote the port. With the withdrawal of JAFZI in July 2007, PKFZ has been managing and marketing the free zone on its own.

Liquidity risk is mitigated through the maintenance of a six months bond servicing reserve in a Finance Service Reserve Account; 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. As of July 2007, SPV has met its covenant in relation to maintaining the required balance in the designated accounts.

The stable rating outlook reflects MARC’s expectations that the financial support from the government would continue to be forthcoming in respect of PKA’s obligations to SPV.