Transshipment Megahub Bhd - 2011 Credit Commentary Report

MARC has affirmed its ratings on Transshipment Megahub Berhad’s (TMB) RM1,095.0 million fixed rate serial bonds (FRSB) and up to RM360.0 million Commercial Papers/Medium Term Notes (CP/MTN) programme at AAA and MARC-1/AAA respectively. The ratings outlook is maintained at negative to reflect a potential withdrawal of government support arising from negative public sentiment surrounding the perceived RM4,632 million bail-out of the Port Klang Free Zone (PKFZ) project and the ongoing legal proceedings by Port Klang Authority (PKA) against Kuala Dimensi Sdn Bhd (KDSB), the turnkey contractor for the PKFZ project.

The PKFZ project is a federal government initiative to transform Port Klang into a regional transhipment hub through the development of a 1,000-acre commercial and industrial zone in Pulau Indah, adjacent to Port Klang’s Westport. Subsequent to the initiation of the project, the government, via the Ministry of Transport (MOT), issued four letters of support for deferred payment receivables from PKA for the land purchase and development costs of PKFZ. PKA is under the direct purview of the MOT.

TMB was incorporated as a special purpose vehicle to facilitate the issuances of the FRSB and CP/MTN to finance the development of the PKFZ project. PKA has confirmed the project cost amounting to RM1.85 billion and has been making annual payments of RM230 million per annum to TMB as part of the deferred payment for these development works. PKA’s last payment was made on June 30, 2011, amounting to RM230 million, ahead of TMB’s next scheduled repayment of its FRSB and CP/MTN of RM195 million and RM10 million respectively on November 3, 2011.

MARC views the continued payment of PKA to TMB as evidence of the federal government’s commitment to honour the letter of support issued by the MOT regardless of the ongoing legal proceedings against KDSB. The perceived support from the federal government mitigates PKA’s weak standalone credit profile and the uninterrupted timely payments from PKA to TMB will reduce downward pressure on TMB’s credit rating. Any changes to the support assumptions may lead to a steep downgrade of the issue ratings.