MARC has affirmed the AAAID(s) rating on Kuching Port Authority’s (KPA) RM180.0 million Al-Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS). The rating reflects the strength of the support extended by the state government of Sarawak to KPA evidenced by its letter of support in which the state undertakes to ensure KPA’s financial obligations in relation to the BaIDS are met in a timely manner. Therefore, KPA’s rating reflects the superior credit strength of the state of Sarawak for which MARC has accorded AAA rating based on public information. The outlook for the rating is stable.

The rating on the state of Sarawak reflects its sound fiscal policy, financial discipline and strong cash and liquidity position. Between 2000 and 2007, the state’s average growth at 5.5% per annum (p.a.) exceeded the national growth rate of 5.1% p.a. In 2007, the state’s revenue is estimated to have grown by 5.8%. The state’s track record of consecutive fiscal surpluses was maintained with a surplus of RM807.0 million or 19.9% of its total revenue for 2007. Sarawak’s public debt has remained at a manageable level of 35% of the total revenue in 2007. The state’s relatively high contingent liabilities of approximately RM6.6 billion as at end 2007 continues to be a rating concern, although this is mitigated by  the state’s significant holdings of cash and cash equivalents which stood at RM8.7 billion as at December 31, 2007.

KPA, as the authority and operator of Kuching Port, is the first organised port in Sarawak to handle import and export activities of the state. As Kuching Port serves as the state’s port, its operations are highly susceptible to the state’s economic growth which would be affected by the current global slowdown.

KPA’s FY2007 revenue was down marginally at RM54.9 million from RM56.1 million a year ago, as a result of the increased preference for container cargo over bulk cargo. Overall cargo volume rose by 5.5% to 7.6 million tonnes in 2007 with container volume increasing by 10.4% at the expense of break bulk and dry bulk segments which declined by 3.0% and 7.9% respectively. Container cargo, however, attracts a lower revenue per tonne of RM7.36 / tonne on average as compared to RM12.62 / tonne for break bulk and RM7.76 / tonne for dry bulk. This was offset by improvements in rental income and lower finance costs, which allowed KPA to record a pre-tax surplus of RM2.5 million after FY2006’s pre-tax deficit of RM213,000. The port’s net cashflow from operations (CFO) was much higher at RM12.5 million, on account of its relatively large depreciation charges. Its CFO and capital grants from the state (FY2007: RM1.5 million) have funded the bulk of its debt service obligations. Its cash and cash equivalents as of December 31, 2007 is reduced to RM17.8 million from RM20.5 million but remains adequate in relation to its short-term debt obligations.

While KPA has been largely self sufficient  in meeting its obligations under the BaIDS, a RM27.0 million standby revolving credit / overdraft facility providing back-up liquidity for the BaIDS offers additional  protection for BaIDSholders together with state support. The state’s support is also evident in its rescheduling of a term loan to KPA which had the effect of making the port’s debt service burden more manageable.

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