MARC has affirmed the ratings of Transshipment Megahub Berhad’s (TMB) RM1,095.0 million fixed rate serial bonds and up to RM360.0 million Commercial Papers/Medium Term Notes (CP/MTN) programme at AAA and MARC-1/AAA, respectively. The ratings carry a stable outlook. TMB, a financing vehicle wholly-owned by the turnkey developer of Port Klang Free Zone (PKFZ), Kuala Dimensi Sdn Bhd (KDSB), was incorporated solely for the purpose of issuing the fixed rate serial bonds and CP/MTN to fund the development of PKFZ, including the construction of high-tech office and transshipment facilities. The bonds and notes are secured by deferred payment receivables from Port Klang Authority (PKA) arising from development work undertaken for PKFZ by KDSB. The affirmed ratings continue to reflect the Government of Malaysia’s (GOM) support for the PKFZ, an integrated free commercial and industrial zone situated adjacent to Port Klang, and PKA’s deferred payment obligations relating to the development of PKFZ. Debt service on the bonds and notes is funded from payments made by PKA in respect of its deferred payment obligations. The GOM has, through the Ministry of Transport, provided a letter of support for the bonds and CP/MTN, and have to date provided a soft loan of RM4.63 billion. The rating also incorporates a protective issue structure which provides for six months of debt service reserves.

Construction works were completed in September 2006, nine months ahead of the 36-month development period provided for under the Development Agreement. PKA has issued a certification of practical completion after completion inspections, following which the total cost of development and total interest payable by PKA has been ascertained via a letter issued in May 2008. With the certification from PKA, construction risk has been fully eliminated.

Liquidity risk is mitigated with the requirement to maintain a balance equivalent to coupon/interest payments for the bonds for the next six months in the Debt Service Reserve Account, a four-month timing buffer between the projected date of receipt of funds from PKA and the scheduled principal repayment of the bonds. In addition, the excess spread between the interest earned on the deferred payment by PKA and interest payable on the bonds provides an additional liquidity buffer for any timing mismatch. Since the completion of construction works, a portion of funds in the Escrow Account has been withdrawn and remitted to KDSB by the trustee as allowed under the trust deed while the balance has been maintained to cover any increase in interest obligations under the CP/MTN programme. As at August 2008, TMB was in compliance with covenants relating to the maintenance of the required balances in the designated accounts. PKA remitted RM230 million to TMB in July 2008, four months ahead of the scheduled payment of coupons and tranche 2 of the bond due in November 2008.

The stable rating outlook reflects MARC’s expectations that the financial support from the government would continue to be forthcoming in respect of PKA’s obligations to TMB.

Contacts:
Ahmad Zaidi Basri 03-2090 2268 / zaidi@marc.com.my;
Rustam Apandi Jamaludin 03-2090 2250 / rustam@marc.com.my