Friday, Nov 05, 1999
Malaysian Rating Corporation Berhad (MARC) has assigned a short-term rating of MARC-1 to Kertih Terminals Sdn Bhd’s (KTSB) RM500.0 million Revolving Underwriting Facility (RUF). The rating reflects the strength, experience and financial backing of the project sponsors, namely PETRONAS, GATX Terminals and the Dialog Group; the advanced stage of construction of Phase I; reduced construction risk; and the stable and predictable cash flow supported by contracted throughput and tariffs.
KTSB was incorporated to undertake the construction and operation of a Centralized Tankage Facility for PETRONAS’ Integrated Petrochemical Complex in Kertih, Terengganu. The Project sponsors possess the relevant background, experience as well as the financial capacity to undertake the Project. The Shareholders’ Agreement promote the sponsors long-term commitment and ensure availability of funds for the Project.
Besides being a co-sponsor of the Project, Dialog Holdings Sdn Bhd [a wholly owned subsidiary of Dialog Group Bhd (DGB)] is also the EPCC contractor. The Dialog Group (Corporate Credit Rating of AA-) has considerable experience in the construction aspect of the oil & gas and petrochemical sectors and a strong financial profile. Project implementation is based on an alliancing concept where the project partners jointly manage and implement the Project through an experienced Integrated Construction Team. Reliance is placed on GATX Terminals’ extensive experience in terminal operations in respect of cost and quality control matters. Any cost overrun in excess of 5% will be borne solely by Dialog Holdings Sdn Bhd (DHSB), motivating the company to meet the negotiated contract price. The risk of a cost overrun is reduced considering the advanced stage of construction of Phase I (89.3% completion with no cost overrun as at September 1999), the tight control maintained over Project expenditure, the transfer of the exchange rate risk to the users through the tariff structure and ability of the company to source for construction materials worldwide at competitive prices. Liquidated ascertained damages payable by DHSB if it fails to complete any section of the works according to schedule can be partly recovered from a performance bond granted by DHSB to KTSB.
The operation and maintenance procedures will be adopted from that employed at GATX Terminals, Singapore, which will also provide technical assistance to KTSB under a five-year agreement. KTSB’s senior management is highly experienced, providing assurance of a smooth and efficient operation of the terminal.
The users of the terminal belong to reputable, financially strong multinational companies, occupying leading positions in a wide range of businesses. PETRONAS is a common shareholder in all five joint venture companies. Sharing of the terminal facilities among the users would reap them substantial cost savings through the reduction in infrastructure investment and operating expenses. Despite the over-capacity and global weakening of prices for petrochemical products, the prospects for petrochemical producers in Asia are, by and large, positive given the robust end markets in the US and Europe.
The Terminal Usage Agreement is well structured to recover fixed capital costs and to pass through increases in the costs of utilities, operation and maintenance to the users, thereby protecting the operating margin. Exchange rate risk during construction is allocated to users. The revenue based on a guaranteed minimum annual throughput is sufficient for the company to service its debts. Risk of revenue interruption is mitigated as the terminal`s storage charges will be payable regardless of the actual throughput handled, or the occurrence of a force majeure event except when the facilities are rendered unavailable by such events. If the Agreement is prematurely terminated, the users will be required to pay to KTSB the total storage charges for the remaining term of the contract.
The take-or-pay features of the Terminal Usage Agreement and the recovery of projected operating costs from users through the product tariffs, accord a high degree of stability and predictability to the Project’s cash flow. The availability of a term loan conversion facility eliminates the refinancing risk associated with the redemption of notes outstanding at the maturity date of the RUF.
KTSB was incorporated to undertake the construction and operation of a Centralized Tankage Facility for PETRONAS’ Integrated Petrochemical Complex in Kertih, Terengganu. The Project sponsors possess the relevant background, experience as well as the financial capacity to undertake the Project. The Shareholders’ Agreement promote the sponsors long-term commitment and ensure availability of funds for the Project.
Besides being a co-sponsor of the Project, Dialog Holdings Sdn Bhd [a wholly owned subsidiary of Dialog Group Bhd (DGB)] is also the EPCC contractor. The Dialog Group (Corporate Credit Rating of AA-) has considerable experience in the construction aspect of the oil & gas and petrochemical sectors and a strong financial profile. Project implementation is based on an alliancing concept where the project partners jointly manage and implement the Project through an experienced Integrated Construction Team. Reliance is placed on GATX Terminals’ extensive experience in terminal operations in respect of cost and quality control matters. Any cost overrun in excess of 5% will be borne solely by Dialog Holdings Sdn Bhd (DHSB), motivating the company to meet the negotiated contract price. The risk of a cost overrun is reduced considering the advanced stage of construction of Phase I (89.3% completion with no cost overrun as at September 1999), the tight control maintained over Project expenditure, the transfer of the exchange rate risk to the users through the tariff structure and ability of the company to source for construction materials worldwide at competitive prices. Liquidated ascertained damages payable by DHSB if it fails to complete any section of the works according to schedule can be partly recovered from a performance bond granted by DHSB to KTSB.
The operation and maintenance procedures will be adopted from that employed at GATX Terminals, Singapore, which will also provide technical assistance to KTSB under a five-year agreement. KTSB’s senior management is highly experienced, providing assurance of a smooth and efficient operation of the terminal.
The users of the terminal belong to reputable, financially strong multinational companies, occupying leading positions in a wide range of businesses. PETRONAS is a common shareholder in all five joint venture companies. Sharing of the terminal facilities among the users would reap them substantial cost savings through the reduction in infrastructure investment and operating expenses. Despite the over-capacity and global weakening of prices for petrochemical products, the prospects for petrochemical producers in Asia are, by and large, positive given the robust end markets in the US and Europe.
The Terminal Usage Agreement is well structured to recover fixed capital costs and to pass through increases in the costs of utilities, operation and maintenance to the users, thereby protecting the operating margin. Exchange rate risk during construction is allocated to users. The revenue based on a guaranteed minimum annual throughput is sufficient for the company to service its debts. Risk of revenue interruption is mitigated as the terminal`s storage charges will be payable regardless of the actual throughput handled, or the occurrence of a force majeure event except when the facilities are rendered unavailable by such events. If the Agreement is prematurely terminated, the users will be required to pay to KTSB the total storage charges for the remaining term of the contract.
The take-or-pay features of the Terminal Usage Agreement and the recovery of projected operating costs from users through the product tariffs, accord a high degree of stability and predictability to the Project’s cash flow. The availability of a term loan conversion facility eliminates the refinancing risk associated with the redemption of notes outstanding at the maturity date of the RUF.