MARC has reaffirmed the AAA(s)ID rating of Kuching Port Authority’s (KPA) RM180 million Al-Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS). The rating outlook is stable.

KPA is the first organised port in the state of Sarawak. The AAA(s)ID  is rooted in the evident implicit support by the Sarawak State Government for KPA’s BaIDS through a letter of support which undertakes to ensure that KPA meets its obligations relating to the BaIDS in a timely manner. The port is strategically and economically important to the state. The rating also reflects a protective issue structure that includes RM27 million of liquidity support provided by standby revolving credit/overdraft facilities for the tenure of the BaIDS to meet cash shortfalls in respect of debt service obligations.

MARC’s AAA implied rating on the Sarawak State Government reflects its sound financial performance, favourable economic outlook, declining debt levels, manageable debt service burden relative to its resources, the Government’s demonstrated fiscal discipline and ample liquidity.

The state’s fiscal condition remains on solid footing. The state recorded significant fiscal surpluses over the last five years with a revised estimated surplus amounting to 11.4% of its revenue for 2007. Meantime, the state’s gross debt has decreased from about 51% of the state’s revenue in 2003 to 38% in 2006. Sarawak’s revenue is however also dependent on the performance of its key natural resources, notably, oil & gas and timber, the performance of which is expected to remain robust in the coming year. The state’s economy shows indications of gradual diversification towards higher levels of manufacturing and services activity. Meantime, in respect of its expenditures, the state continues to maintain its development-bias (with an allocation of 69% of expenditures in 2007) whilst prudently controlling and managing its operating expenditures.

Kuching Port serves as Sarawak’s state port and principally deals with imports such as vehicles and manufactured goods whilst its exports include sawn timber, daily consumables, petroleum products, foods and crops.

Kuching Port experienced its first decline in total cargo volume in 2006 since 2001. Total cargo volume at Kuching Port declined by 3.46% to 7.22 million tonnes. The decline was mainly attributed to 18.3% decline in break bulk cargo which represented 18.0% of the total cargo volume in 2006.

For the fiscal year ended December 31, 2006, revenue trended downwards on account of lower cargo volumes handled at the port. A pre-tax loss of RM0.2 million was recorded in FY2006 as a result of high operating costs and flat revenue growth.

Cash flow interest coverage remained satisfactory at 1.78 times during FY2006, despite the weak earnings performance revenue. KPA’s liquidity should remain adequate in the coming year in light of the extended nature of its debt maturity schedule, cash balances of about RM20.5 million as of December 2006 and anticipated modest capital spending requirements.