Transshipment Megahub Bhd - 2007

MARC has reaffirmed the ratings of Transshipment Megahub Berhad’s (TMB) RM1,095.0 million fixed rate serial bonds and up to RM360.0 million Commercial Papers/Medium Term Notes (CP/MTN) programme at AAA and AAA/MARC-1, respectively.  The ratings carry a stable outlook.

TMB is a financing vehicle wholly owned by Kuala Dimensi Sdn Bhd (KDSB), incorporated solely for the purpose of issuing the fixed rate serial bonds and CP/MTN; the proceeds of which were used to fund the development of Port Klang Free Zone (PKFZ) amounting to RM1,220.0 million. The development works of PKFZ comprised the construction of high-tech office and transhipment facilities including customs office check points, light and medium industrial facilities and warehouses.

The rating reflects the Government of Malaysia’s (GOM) demonstrated willingness and capacity to support the deferred payment obligations of Port Klang Authority (PKA) to TMB, which represents the payment stream for servicing the fixed rated serial bonds and CP/MTN programme. Although TMB 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 CP/MTN, 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.

Construction works were 100% completed as at September 2006, nine months ahead of the 36-month development period provided for under the Development Agreement. The completed site has been delivered to PKA and is pending the certification of practical completion. The defects liability period has not commenced pending this certification, with the implication that the final payment amount in 2012 remains undetermined. MARC will closely monitor the developments relating to the certification and will highlight any significant corresponding credit implications in its rating updates and future rating reviews.

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 with RM84.71 million of progress claims inclusive of interest which are available in the Escrow Account, which may be used to cover potential shortfalls in the Collection Account and, to cover  any  increase  in  interest obligations  under  the CP/MTN  programme. KDSB has also provided an undertaking to replenish the Escrow Account, should the balance be inadequate to cover increases in funding  costs.  In  addition,  the  requirement  to  maintain   a  balance  equivalent   to  coupon/interest payments for the bonds for the next six months in the Debt Service Reserve Account; a four-month  timing buffer between the projected date of receipt of funds from PKA and the scheduled principal repayment of the bonds; and the excess spread between the interest earned on the deferred payment by PKA and interest payable on the bonds provides further protection. As of November 2007, TMB was in compliance with covenants relating to the maintenance of the required balances 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 TMB.