Special Port Vehicle Bhd - 2008

MARC has affirmed the rating of Special Port Vehicle Berhad’s (SPVB) RM1,310.0 million nominal amount asset-backed serial bonds facility at AAA. The rating carries a stable outlook. SPVB 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 amounting to RM1,699.63 million (including interest). 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 Port Klang Authority (PKA), the obligor, in respect of the sale of 999.5 acres of leasehold land at Pulau Indah, which has been developed as Port Klang Free Zone (PKFZ). The asset-backed bonds are secured by deferred payment receivables from PKA arising from development work undertaken for PKFZ by KDSB. The affirmed ratings continue to reflect the GOM’s support for the PKFZ, an integrated free commercial and industrial zone situated adjacent to Port Klang, and PKA’s deferred payment obligations relating to the development of PKFZ. Debt service on the asset-backed bonds is funded from payments made by PKA in respect of its deferred payment obligations. The GOM has, through the Ministry of Transport, provided a letter of support for the asset-backed bonds, and have to date provided a soft loan of RM4.63 billion. The rating also incorporates a protective issue structure which provides for six months of debt service reserves.

The development of PKFZ as a fully integrated free commercial and industrial zone is aligned to the government’s policy to develop Port Klang as a regional distribution hub as well as a commercial, industrial and logistics centre. The inclusion of PKFZ, which commenced operations in November 2006, is expected to enhance Port Klang’s attractiveness as a transshipment hub. PKA is the coordinator and regulator of port operations within Port Klang.

Liquidity risk is mitigated through the maintenance of six months of debt service reserves 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. The excess spread between the interest earned on the deferred payment by PKA and interest payable on the bonds provides an additional liquidity buffer for any timing mismatch. PKA has represented that it will request the government to remit any budget allocation of development fund directly into a Special Reserve Account which will then be swept into SPVB’s Collection Account. As of August 2008, SPVB has met its covenant in relation to maintaining the required balance in the designated accounts. PKA made its second instalment payment of RM130.0 million in early July 2008 for the series 2 bond due end July 2008.

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 SPVB.

Major Rating Factors

Strengths

• Government of Malaysia’s (GOM) support for the deferred payment obligations of Port Klang Authority (PKA);
• Approval of soft loan by GOM amounting up to RM4.63 billion to PKA for the development of Port Klang Free Zone; and
• Protective features of issue structure.