Westports Malaysia Sdn Bhd - 2008

MARC has assigned an initial rating of AA+IS for Westports Malaysia Sdn Bhd’s (Westports) Proposed RM800 Million Sukuk Musyarakah Medium Term Notes. The rating has a stable outlook. The rating is supported by the company's track record of solid operating performance and strong financial profile. The rating further benefits from an experienced management team and the long standing customer relationships and well-balanced portfolio of global customers. The rating is constrained by the expectation of rising but manageable debt leverage as the company executes its expansion programme. Given strong growth in container traffic and Malaysia’s healthy GDP growth, Westports is expected to invest up to RM800.0 million over the medium term in expansion projects. While the shipping industry is inherently cyclical and sensitive to growth trends in the global economy, MARC takes comfort from Westports’ flexibility to defer certain investments in the event that the current strong demand recedes.

Westports is one of two port operators in Port Klang. Westports’ competitive advantages over its close rivals include a 15-metre deep draft which can accommodate larger ships such as the super post-Panamax vessels, its proximity to road and rail infrastructure, quality information technology support services, and its productivity.  Westports appears well-positioned to capture part of the region’s growing container transhipment trade, particularly with the growing levels of port congestion faced by some of Westports’ neighbouring ports. Port Klang ranks amongst the world's top twenty largest container terminal operators by throughput, which in 2006, was 6.3 million TEUs.

Westports, the nation’s leading private seaport, continues to perform favourably on nearly all metrics (cargo throughput, vessel call activity and productivity). Container and conventional cargo throughput grew at a compounded rate of 15.6% and 3.0% per annum respectively since 2002. Westports recorded a 17% increase in vessel call activity in 2006.  Its strategic alliance with Hutchison Port Holdings (HPH), also a substantial shareholder, allows Westports to leverage on HPH’s operational expertise and derive technology transfer benefits which have contributed to its high productivity measures.  Westports’ ongoing capital expansion programme will bolster its future productivity and competitiveness.

Westports posted solid unaudited results for FY07, with double-digit revenue growth compared to the corresponding period in FY06, in line with the higher cargo volumes handled combined with lower financing costs. Despite ongoing capital spending on port expansion, Westports has gradually pared down its debt leverage to 0.48 times as of December 31, 2007, a level MARC considers as modest. Its outstanding debt has been pared down to RM381.5 million as at 31 December 2007, compared to RM508.2 million as at end of 2006, a decline of 24.9% from the previous year. Westports’ credit protection measures, which were also bolstered by its improved operating results, showed similar improvement.

The stable rating outlook reflects MARC’s expectations that the company will maintain its strong financial profile in the near to intermediate term.

Major Rating Factors

Strengths

• Solid operating performance;
• Sustained competitive position through continued investment in infrastructure and state-of-the art equipment;
• Ample internal liquidity as well as access to external sources of liquidity; and
• Improving cash flow protection measures.

Challenges/Risks 

• Cyclical nature of the container shipping industry; and
• Expectation of rising financial leverage as a result of heavy investment programme