Special Port Vehicle Bhd - 2012 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 with a negative outlook. The affirmed rating takes into account the satisfactory payment history of the Port Klang Authority (PKA) to date in respect of its deferred payment obligations for the land purchase and development costs of Port Klang Free Zone (PKFZ). The tangible financial support provided by the federal government to meet its deferred payment obligations has facilitated the full and timely repayment of debt issued by two other special purpose entities (SPEs) established by Kuala Dimensi Sdn Bhd (KDSB) to fund the PKFZ project. Meanwhile, the debt reserves of a third SPE are fully funded for the purpose of meeting its final debt maturities in November 2012. The negative outlook on SPVB‟s debt rating reflects vulnerability to the government‟s willingness to provide continued support for the rated debt amid the negative public sentiment surrounding the perceived bail-out of the PKFZ project and the ongoing legal suits by PKA against KDSB.

The serial bonds issued by SPVB are backed by the deferred payments from PKA amounting to RM1,699.63 million based on the sale and purchase agreement (SPA) of a 999.5 acre piece of leasehold land on Pulau Indah.

On June 29, 2012, PKA met its deferred payment obligation amounting to RM150 million which will be applied towards SPVB‟s July 2012 bond repayment. MARC considers the payment as evidence of the government‟s commitment to abide by the letters of support issued by the Ministry of Transport in respect of the rated debt. SPVB‟s bonds remain susceptible to downside risks posed by the ongoing legal proceedings and the continuing controversy over the validity and the enforceability of the letters of support for the deferred payment receivables from PKA. Any changes in MARC‟s support assumption may lead to a steep downgrade of SPVB‟s rating.