Wednesday, Dec 20, 2000
The rating of MARC-1 has been affirmed, reflecting the better-than-projected financial position, stable and predictable cash flows generated by take-or-pay contracts for terminal usage, the facility’s advanced construction status, financially strong and experienced project sponsors and the highly qualified senior management team.
Kertih Terminals Sdn Bhd (KTSB) was incorporated to undertake the construction and operation of a Centralized Tankage Facility (CTF) for PETRONAS integrated Petrochemical Complex in Kertih, Terengganu. Key project sponsors are PETRONAS (40%), GATX Terminals (Jurong) Pte. Ltd (30%) and Dialog Equity Sdn Bhd (30%). Construction works for the project are being undertaken by Dialog E & C Sdn Bhd, wholly-owned subsidiary of Dialog Group Berhad, which in turn, owns a 51% shareholding in Dialog Equity Sdn Bhd. Construction of phase 1 was mostly completed as scheduled. Due for completion in end-May 2001, construction progress on phase 2 is slightly ahead of schedule as at November 2000. This, and the 2-month buffer period between the completion and hand over of facilities indicate that phase 2 of the project should move into commercial operation on time and on budget. The alliancing concept, whereby project partners jointly manage and implement the project to maximise cost saving has resulted in estimated savings of 10% for the construction of phase 1.
The users of the terminals are five petrochemical companies, which were formed as joint-ventures between reputable, creditworthy multinational companies and the national oil company, PETRONAS. MARC views PETRONAS’ leadership role as the important element of the rating and further expects the terminal users to remain supportive of the project in light of the substantial cost savings made possible by reduced infrastructure investment and operating expenses. Despite the over-capacity and global weakening of prices for petrochemical products and the potential weakening of the major end user markets, US and Europe in the near term, the long-term prospects for the petrochemical sector in Asia remain positive. During the year under review, the users gradually built up the usage capacity over a five to six months period in accordance with the terms and conditions of the Terminal Usage Agreement (TUA). Similarly, payments to KTSB were gradually stepped-up to the minimum off-take amount. Moving forward, all users will be required to pay the minimum off-take amount irrespective of the rate of utilization. MARC is of the view that the risk of the TUAs not being honored is low.
The financial position of KTSB for the year under review was much better than projected a direct result of lower operating cost and interest expense. Profit before tax of RM6.1 million (vs. zero projected profit) and an operating profit margin of 47% were achieved for the financial year. The project’s high degree of automation is expected to keep operating costs low, while built-in cost pass-through mechanisms adequately protect KTSB’s operating profit margin. The take-or-pay nature of the company’s 20-year TUAs provides the foundation for a strong operating and financial profile. The resulting revenue stream is stable and highly predictable, giving rise to strong cash flow protection. The projected interest and debt coverage ratios look solid, averaging at 5.0x and 0.3x respectively for the remaining period of the facilities. This strong coverage could easily withstand adverse pressure from a delay in the collection of receivables and higher interest costs, and MARC’s stress scenarios indicate that it is unlikely to fall below 2.0x.
Reliance on debt to finance the construction of the storage tanks has increased KTSB’s debt equity ratio to 1.2x as at end-FY3/2000. Nevertheless, cost savings from the alliancing agreement and retained earnings kept the ratio below the projected 2.6x. Gearing is expected to gradually decline from its peak in FY2002, a result of internally generated capital and partial principal repayments of the facility in FY2003 and FY2004. Refinancing risk associated with the RUF has been largely eliminated with the availability of a term loan facility, which may be used for the redemption of the notes when they mature in 2004.
Kertih Terminals Sdn Bhd (KTSB) was incorporated to undertake the construction and operation of a Centralized Tankage Facility (CTF) for PETRONAS integrated Petrochemical Complex in Kertih, Terengganu. Key project sponsors are PETRONAS (40%), GATX Terminals (Jurong) Pte. Ltd (30%) and Dialog Equity Sdn Bhd (30%). Construction works for the project are being undertaken by Dialog E & C Sdn Bhd, wholly-owned subsidiary of Dialog Group Berhad, which in turn, owns a 51% shareholding in Dialog Equity Sdn Bhd. Construction of phase 1 was mostly completed as scheduled. Due for completion in end-May 2001, construction progress on phase 2 is slightly ahead of schedule as at November 2000. This, and the 2-month buffer period between the completion and hand over of facilities indicate that phase 2 of the project should move into commercial operation on time and on budget. The alliancing concept, whereby project partners jointly manage and implement the project to maximise cost saving has resulted in estimated savings of 10% for the construction of phase 1.
The users of the terminals are five petrochemical companies, which were formed as joint-ventures between reputable, creditworthy multinational companies and the national oil company, PETRONAS. MARC views PETRONAS’ leadership role as the important element of the rating and further expects the terminal users to remain supportive of the project in light of the substantial cost savings made possible by reduced infrastructure investment and operating expenses. Despite the over-capacity and global weakening of prices for petrochemical products and the potential weakening of the major end user markets, US and Europe in the near term, the long-term prospects for the petrochemical sector in Asia remain positive. During the year under review, the users gradually built up the usage capacity over a five to six months period in accordance with the terms and conditions of the Terminal Usage Agreement (TUA). Similarly, payments to KTSB were gradually stepped-up to the minimum off-take amount. Moving forward, all users will be required to pay the minimum off-take amount irrespective of the rate of utilization. MARC is of the view that the risk of the TUAs not being honored is low.
The financial position of KTSB for the year under review was much better than projected a direct result of lower operating cost and interest expense. Profit before tax of RM6.1 million (vs. zero projected profit) and an operating profit margin of 47% were achieved for the financial year. The project’s high degree of automation is expected to keep operating costs low, while built-in cost pass-through mechanisms adequately protect KTSB’s operating profit margin. The take-or-pay nature of the company’s 20-year TUAs provides the foundation for a strong operating and financial profile. The resulting revenue stream is stable and highly predictable, giving rise to strong cash flow protection. The projected interest and debt coverage ratios look solid, averaging at 5.0x and 0.3x respectively for the remaining period of the facilities. This strong coverage could easily withstand adverse pressure from a delay in the collection of receivables and higher interest costs, and MARC’s stress scenarios indicate that it is unlikely to fall below 2.0x.
Reliance on debt to finance the construction of the storage tanks has increased KTSB’s debt equity ratio to 1.2x as at end-FY3/2000. Nevertheless, cost savings from the alliancing agreement and retained earnings kept the ratio below the projected 2.6x. Gearing is expected to gradually decline from its peak in FY2002, a result of internally generated capital and partial principal repayments of the facility in FY2003 and FY2004. Refinancing risk associated with the RUF has been largely eliminated with the availability of a term loan facility, which may be used for the redemption of the notes when they mature in 2004.