Special Port Vehicle Bhd - 2011 Credit Commentary Report

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 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.

SPVB is a special purpose entity established for the sole purpose of issuing serial bonds backed by receivables from PKA relating to land acquisition. The bonds are backed by future receivables amounting to RM1,699.63 million (principal of RM1,088 million plus interest of 7.5% per annum) which represents the balance consideration under a Sale and Purchase Agreement dated November 2002 between KDSB and PKA for the sale of 999.5 acres of leasehold land on Pulau Indah for the PKFZ project.

MARC views the continued payment of PKA to SPVB 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. On June 30, 2011, PKA met its RM150 million scheduled repayment to SPVB’s designated accounts. The perceived support from the federal government mitigates PKA’s weak standalone credit profile and the uninterrupted timely payments from PKA to SPVB will reduce downward pressure on SPVB’s credit rating. Any changes to the support assumptions may lead to a steep downgrade of the debt rating.