Malaysian International Tuna Port Sdn Bhd - 2009 Credit Commentary Report

MARC continues to maintain Malaysian International Tuna Port Sdn Bhd’s (MITP) A+ID rated RM240.0 million Bai’ Bithaman Ajil Islamic Securities (BAIS) on MARCWatch Negative, where it had been first placed on February 19, 2009. The continuing MARCWatch Negative placement reflects MARC’s view that MITP faces acute and immediate challenges as implied by its strained liquidity profile, and increased project completion risk with the timetable for the project completion extending well beyond original expectations. 

While the recent May 18, 2009 profit payment on the BAIS has been fully satisfied by transfer of funds to the sinking fund account from finance income earned on designated accounts, subsequent debt service payments prior to project completion will have to be met from additional capital to be provided by its shareholders.

MITP has informed MARC that it is taking steps to address its immediate challenges and is exploring the possibility of raising new capital from a government agency. These developments raise uncertainties about MITP receiving timely financial support from the government which had earlier been key to MARC’s assignment of the A+ID rating.

MARC, in its initial MARCWatch placement on February 19, 2009, had highlighted a notice of breach by the trustee to MITP for failing to provide information on its plan to remedy a shortfall in its Finance Service Reserve Account 2 (FSRA 2), among others. During the subsequent informal BAISholders’ meeting on April 30, 2009, MITP gave a verbal commitment that it would make full redemption of BAIS by the next profit payment on November 17, 2009. MITP then confirms its intention in writing through a letter dated May 19, 2009 to the trustee. MITP also confirms that no further drawdown from the BAIS facility will be made until November 17, 2009. Notwithstanding MITP’s demonstrated commitment, BAISholders have the right to waive the notice of breach, to give indulgence or to declare an event of default.

Consequently, the MARCWatch Negative status incorporates the possibility of the rating being lowered if MITP’s BAISholders elect to declare an event of default and exercise their rights to accelerate the BAIS repayment. However, should BAISholders elect to waive the breach, MARC will most likely lower its rating on the BAIS in the event that MITP fails to make meaningful progress on its capital-raising initiative by end-May 2009.