MARC has placed its debt ratings of AAA and MARC-1/AAA of Port Klang Free Zone (PKFZ) related debt issuances on MARCWatch Negative. The PKFZ related debt ratings involve the following issuers and corresponding debts:

1. Special Port Vehicle Berhad’s (SPV) RM1,310 million Asset-Backed Serial Bond (ABSB);
2. Transshipment Megahub Berhad’s (TMB) RM1,095 million Fixed Rate Serial Bonds (FRSB) and up to RM360   million Commercial Papers/Medium Term Notes (CP/MTN);
3. Valid Ventures Berhad’s (VVB) RM510 million FRSB and up to RM85 million CP/MTN; and
4. Free Zone Capital Berhad’s (FZCB) RM410 million FRSB and up to RM70 million CP/MTN.

The MARCWatch Negative placement follows the recent press statement made by Port Klang Authority regarding its decision to withhold a total of RM660.0 million of payments due to Kuala Dimensi Sdn Bhd (KDSB) in the months of June and July 2009 pending the completion of a full review by a task force that has been commissioned to report on the PKFZ project.  MARC is concerned that PKA’s announced moratorium on the payments despite its ability to meet the said obligations signals a sudden and adverse change in its willingness to pay. MARC cautions that PKA’s failure to meet the abovementioned payments would result in heightened vulnerability of the four issuers’ non-payment of the rated obligations. The rating agency considers SPV to be most vulnerable to near-term default risk as PKA has failed to make a scheduled payment of RM360.0 million due on June 30, 2009 into SPV’s Finance Service Reserve Account which is meant to redeem RM100.0 million of ABSB and meet related coupon payments scheduled on July 30, 2009.  The next respective scheduled FRSB maturity for TMB, VVB and FZCB fall due in November 2009. 

MARC’s ratings on the four special purpose vehicles had reflected the willingness and capacity of the federal government of Malaysia to support the deferred obligations of PKA to KDSB under the respective agreements between the two parties relating to the purchase of land and development of PKFZ. The government had previously demonstrated explicit support for the obligations through the provision of a soft loan of up to RM4.63 billion to PKA to meet these obligations in full over the tenure of the rated facilities.

PKA is a statutory corporation under the purview of the Ministry of Transport (MOT) where its chairman and board members are appointed by MOT. PKA assumes the role of trade facilitator, regulator, landlord and free zone authority in Port Klang. The PKFZ project was initiated and endorsed by the government with the objective of elevating the status of Port Klang into a national load centre and regional transhipment hub.

The ratings are currently on review for potential multi-notch downgrade and MARC expects to resolve the MARCWatch placements in the next 30 days.

Contacts:
Ahmad Zaidi Basri 03-2090 2268 / zaidi@marc.com.my;
Khairul Emran Mahmud 03-2090 2278 / emran@marc.com.my;
Sandeep Bhattacharya 03-2090 2247 / sandeep@marc.com.my