Wednesday, Mar 13, 2002
The rating of MARC-1 has been reaffirmed, reflecting Kertih Terminals Sdn Bhd’s (KTSB) better-than-projected financial position, stable and predictable cash flows generated by take-or-pay contracts for terminal usage, financially strong and experienced project sponsors and the highly qualified senior management team.
KTSB was incorporated to undertake the construction and operation of a Centralized Tankage Facility (CTF) for PETRONAS’ Integrated Petrochemical Complex in Kertih, Terengganu. The presence of PETRONAS as a shareholder of both KTSB and the petrochemical ventures set up in Kertih, provide important support for the viability of the Project. By utilizing the storage facilities provided by the terminal, users (that is, the petrochemical venture companies) are able to realize substantial cost savings through the reduction in infrastructure investment and operating expenses.
Construction was divided into two phases, with the first phase completed on schedule whilst the hand-over of the second phase was slightly delayed at the request of a customer whose own infrastructure works were behind schedule. Through the alliancing concept of project implementation, whereby the project partners jointly manage and implement the project, an estimated 10% savings in project costs were realized under Phase 1.
Financial year end March 2001 saw a six-fold increase in KTSB’s revenue to RM93.2 million, with the commencement of basic tariff payments [that is, minimum warehouse charge (MWC)] by the terminal users under Phase 1. The MWC is payable notwithstanding that the actual throughput handled may be less than the designated throughput. This take or pay feature injects an element of stability and predictability in the revenue stream. Going forward, revenue is projected to grow by 15% and 10% in fiscal year 2003 and 2004 respectively, driven in part by the expected excess throughput tariff.
The sponsors of the petrochemical venture companies; which include PETRONAS, British Petroleum, Mitsui and Mitsubishi; are reputable multinational companies, occupying leading positions in a wide range of businesses and with strong financial profiles. Credit risks of the terminal users are, thus, mitigated. Also, the 20-year terminal usage contract period ensures a long-term demand for the facilities. Despite the current slack in global demand and slowdown in regional economic growth, Asia is still regarded as a strategically important area for petrochemical companies given its proximity to feedstocks and end users. Hence, the long term outlook for petrochemical producers in Asia remain generally positive.
The facilities’ high degree of automation has helped to contain increases in operating costs, while built-in cost pass through mechanisms adequately protect KTSB’s operating profit margin, that rose to 67.0% in fiscal year 2001 compared to 49.7% previously. Consequently, the company recorded a profit before tax of RM56.78 million, higher than the projected RM40.7 million. KTSB’s debt servicing capacity also improved, backed by the surplus operating cash flow. Under a stressed scenario of a six-month delay in collection of receivables, KTSB’s cash flow interest coverage and debt service coverage is projected to average 3.1 times and 4.4 times respectively for the remaining tenure of the facility. Refinancing risk associated with the redemption of notes outstanding at the maturity of the RUF, is mitigated through the availability of a term loan conversion feature under the issue structure.
KTSB’s total debt, represented by the RUF increased 14.14% to RM218 million in FY2001. Against an enlarged shareholders’ funds of RM194.6 million, the company’s debt leverage was however, marginally lower at 1.1 times compared to 1.2 times previously. With the planned amortization of the RUF, debt leverage is expected to gradually decline over the remaining tenure of the facility.
KTSB was incorporated to undertake the construction and operation of a Centralized Tankage Facility (CTF) for PETRONAS’ Integrated Petrochemical Complex in Kertih, Terengganu. The presence of PETRONAS as a shareholder of both KTSB and the petrochemical ventures set up in Kertih, provide important support for the viability of the Project. By utilizing the storage facilities provided by the terminal, users (that is, the petrochemical venture companies) are able to realize substantial cost savings through the reduction in infrastructure investment and operating expenses.
Construction was divided into two phases, with the first phase completed on schedule whilst the hand-over of the second phase was slightly delayed at the request of a customer whose own infrastructure works were behind schedule. Through the alliancing concept of project implementation, whereby the project partners jointly manage and implement the project, an estimated 10% savings in project costs were realized under Phase 1.
Financial year end March 2001 saw a six-fold increase in KTSB’s revenue to RM93.2 million, with the commencement of basic tariff payments [that is, minimum warehouse charge (MWC)] by the terminal users under Phase 1. The MWC is payable notwithstanding that the actual throughput handled may be less than the designated throughput. This take or pay feature injects an element of stability and predictability in the revenue stream. Going forward, revenue is projected to grow by 15% and 10% in fiscal year 2003 and 2004 respectively, driven in part by the expected excess throughput tariff.
The sponsors of the petrochemical venture companies; which include PETRONAS, British Petroleum, Mitsui and Mitsubishi; are reputable multinational companies, occupying leading positions in a wide range of businesses and with strong financial profiles. Credit risks of the terminal users are, thus, mitigated. Also, the 20-year terminal usage contract period ensures a long-term demand for the facilities. Despite the current slack in global demand and slowdown in regional economic growth, Asia is still regarded as a strategically important area for petrochemical companies given its proximity to feedstocks and end users. Hence, the long term outlook for petrochemical producers in Asia remain generally positive.
The facilities’ high degree of automation has helped to contain increases in operating costs, while built-in cost pass through mechanisms adequately protect KTSB’s operating profit margin, that rose to 67.0% in fiscal year 2001 compared to 49.7% previously. Consequently, the company recorded a profit before tax of RM56.78 million, higher than the projected RM40.7 million. KTSB’s debt servicing capacity also improved, backed by the surplus operating cash flow. Under a stressed scenario of a six-month delay in collection of receivables, KTSB’s cash flow interest coverage and debt service coverage is projected to average 3.1 times and 4.4 times respectively for the remaining tenure of the facility. Refinancing risk associated with the redemption of notes outstanding at the maturity of the RUF, is mitigated through the availability of a term loan conversion feature under the issue structure.
KTSB’s total debt, represented by the RUF increased 14.14% to RM218 million in FY2001. Against an enlarged shareholders’ funds of RM194.6 million, the company’s debt leverage was however, marginally lower at 1.1 times compared to 1.2 times previously. With the planned amortization of the RUF, debt leverage is expected to gradually decline over the remaining tenure of the facility.