Special Port Vehicle Bhd - 2013 Credit Commentary Report

MARC has affirmed the AAA rating on Special Port Vehicle Berhad’s (SPVB) RM1,310.0 million nominal amount asset-backed serial bonds facility with a negative outlook. The rating action affects the outstanding bonds of RM610.0 million following the redemption of the RM130.0 million Series 7 on July 30, 2013. The assets backing the transaction comprise the deferred payments from Port Klang Authority (PKA) amounting to RM1,699.6 million in respect of the sale and purchase of a 999.5-acre parcel of leasehold land on Pulau Indah.

Upon the full repayment of debt issued by Free Zone Capital Berhad, Valid Ventures Bhd and Transshipment Megahub Sdn Bhd, SPVB’s bond remains the only outstanding debt issuance of special purpose entities (SPE) established by Kuala Dimensi Sdn Bhd (KDSB) to finance the Port Klang Free Zone (PKFZ) project. The affirmed rating is premised on the satisfactory repayment track record of PKA in relation to its deferred payment obligations to SPVB for the land acquisition. SPVB received the seventh repayment from PKA amounting to RM170.0 million in end-June 2013 which was utilised for SPVB’s July 2013 bond repayment and semi-annual coupon payment. Upon meeting the debt service obligations for July 2013, cash balances in SPVB’s designated accounts of RM52.6 million are sufficient to meet the next two semi-annual coupon payments.

The negative outlook continues to reflect the vulnerability to the government’s willingness to provide continued support for the outstanding debt arising from the ongoing legal suits associated with the development of the PKFZ and negative public sentiment surrounding the perceived bail-out of the project. The disputes have ultimately raised issues over the validity and enforceability of the letters of support issued by the Ministry of Transport (MOT) for the deferred payment receivables from PKA. MARC views PKA’s continued adherence to the schedule for the deferred payment as evidence of the government’s commitment to abide by the letters of support in respect of the rated debt. Any sign of weakening support may have an adverse impact on the rating.