MARC has placed the A+ID rating on Malaysian International Tuna Port Sdn Bhd’s (MITP) RM240.0 million Bai’ Bithaman Ajil Islamic Securities (BAIS) on MARCWatch Negative. Since MARC’s last rating action on July 23, 2008, construction works at the tuna port has halted for more than a year, considerably longer than the six-month delay anticipated earlier. MITP’s construction agreement with the contractor, See Song & Sons Sdn Bhd has since expired and further utilisation of the BAIS has been suspended. MITP is currently facing a RM40.83 million shortfall in its Finance Service Reserve Account 2 (FSRA) and has been issued a notice of breach by the trustee for the BAIS for failing to provide information on its plan to remedy the shortfall. MITP is also required to provide the quantum of the cost overrun arising from the construction delay and revised cashflow projections, amongst others. Failure to remedy the breach of covenant will entitle MITP’s BAISholders to declare an event of default within 60 days from the notice date of February 10, 2009.

The construction of MITP’s fisheries port at Batu Maung, Penang has been halted since a stop-work order issued by Department of Environment Malaysia (DOE) in September 2007. The order was subsequently lifted on September 16, 2008 but the expiry of the construction contract on September 17, 2008 has meant that MITP will now have to negotiate for a supplemental agreement with the contractor. Pending the conclusion of the supplemental agreement, construction work has not recommenced. As of January 2009, the construction has been delayed by 15 months. The completion date for construction works has been revised to December 2010 from May 2009 earlier.

The delay in construction work has also affected the commencement of operation of the subsidiaries who were expected to contribute as much as 97.0% of MITP’s revenue and provide main source of BAIS repayment. MITP’s subsidiaries were initially expected to commence operation between 4Q2008 and 1Q2009.

In addition, the FSRA, which prefunds profit payment during the construction period, has been fully utilised. In order to ensure sufficient funds to service the profit payment during the construction period, MITP will now have to restore the FSRA balance to RM40.83 million which is equal to four half-yearly profit payments. The next profit payment of RM10.2 million is due in May 2009.

MARC expects to resolve the MARCWatch placement once greater clarity is obtained regarding actions that will be taken by MITP to address the shortfall in its FSRA and suspended construction works. Accordingly, the rating may be lowered if MARC believes that MITP’s credit profile is no longer consistent with its current rating.

Contacts:
Rustam Apandi Jamaludin 03-2090 2250  / rustam@marc.com.my;
Sharidan Salleh 03-2050 2243 / sharidan@marc.com.my