Assar Chemicals Sdn Bhd - 2008/2009

MARC has affirmed its long-term rating on independent oil terminal (IOT) owner, Assar Chemicals Sdn Bhd’s (ACSB) RM150 million Serial Sukuk Musyarakah (Sukuk) at AAAIS. The outlook on the rating is stable. The affirmed rating reflects the fundamentals of the underlying oil terminal project, underpinned by a 30-year agreement through 2037 with terminal users of superior credit standing. Contractual monthly tariffs which provide for cost recovery from Petronas Dagangan Berhad (PDB) and Shell Timur Sdn Bhd (STSB) back ACSB’s ability to meet its obligations under the Sukuk. The rating also incorporates ACSB’s status as a linked entity of the Sarawak state. The stable outlook on the rating reflects MARC’s expectation of continued satisfactory operation of the oil terminal as well as adequate revenue and cashflow generation vis-à-vis obligations under the Sukuk.

Incorporated to undertake the construction of the IOT in Senari in Kuching, Sarawak, ACSB entered into a Musyarakah contract with the Sukukholders for the purpose of constructing and leasing the IOT. The Sukuk trustee holds a beneficial interest in the IOT on behalf of the Sukukholders. The IOT is leased to ACSB pursuant to a lease agreement between the Sukuk trustee and ACSB. The lease rentals, funded by monthly tariffs from the terminal users, are applied towards profit payments and serial redemption of the Sukuk which commenced in August 2008. The IOT, which has been in operation since January 2007, is a centralised storage facility for bulk petroleum products and liquefied petroleum gas. ACSB’s related company IOT Management Sdn Bhd, in which PDB and STSB have a direct shareholding of 20% and 10% respectively, was appointed to manage, operate and maintain the oil terminal for a period of 30 years.

ACSB is a wholly-owned subsidiary of Assar Senari Sdn Bhd, which in turn is linked to the Sarawak government through a 20% ownership by Yayasan Sarawak, a state-owned agency. Its ultimate holding company is Lembaga Amanah Kebajikan Masjid Negeri Sarawak, an organisation incorporated and governed by the Charitable Trust Ordinance, which effectively holds a 56.5% interest in ACSB.

For financial year ended December 2007 (FY2007), ACSB’s revenue of RM26.5 million was marginally higher than forecast as it was based on tariff revenue for 13 months, including January 2008, arising from advanced billing procedures in accordance with the agreement with its users. As a result, ACSB’s pre-tax profit of RM8.8 million and operating profit margin of 68.3% was also higher than forecast earlier.

Despite the Sukuk’s large initial profit payment of RM18.5 million (accumulated since the Sukuk’s issuance in August 2005) which was paid as scheduled, ACSB maintained some headroom in its compliance with its minimum required finance service cover ratio of 1.2 times, at 2.15 times for FY2007. ACSB is expected to be able to maintain its finance service coverage at comfortable levels underpinned by its strong earnings generation capacity.

Based on draft audited accounts for financial year ended December 31, 2008 (FY2008), ACSB achieved its revenue forecast of RM24.9 million. Its profitability remained healthy with an operating profit margin of 62.3% and pre-tax profit of RM6.8 million. Collection of tariff payments from the users remained within the 30-day credit period. Meanwhile, its debt-to-equity ratio has declined to 2.6 times, below the covenanted limit of 4.0 times under the Sukuk, and is expected to continue to decline through stable retention of earnings coupled with scheduled redemption of the Sukuk. 

Major Rating Factors

Strengths

Challenges/Risks