MARC has removed its AAA and MARC-1/AAA ratings on Port Klang Free Zone (PKFZ)-related debt issuances from MARCWatch Negative where they were first placed on July 1, 2009. Concurrently, MARC has attached a negative outlook to the ratings. The rating actions affect the following issues:

1. Special Port Vehicle Berhad’s (SPVB) RM1,310 million Asset-Backed Serial Bonds;
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.

MARC’s rating actions follow Port Klang Authority’s (PKA) apparent lifting of its announced moratorium on payments due in the months of June and July 2009 to Kuala Dimensi Sdn Bhd (KDSB) for the purchase of land and development of PKFZ. All corresponding payments due to SPVB, TMB, VVB and FZCB in the months of June and July have been received in full, enabling all four entities to meet their respective obligations under the rated issuances. SPVB, which had earlier failed to meet its scheduled funding payments into its Finance Service Reserve Account due on June 30, 2009, subsequently made full and timely payment of principal and interest due on July 30, 2009. The next scheduled principal and interest payments for TMB, VVB and FZCB are due in November 2009.

The negative ratings outlook increased event risk arising from a weakening in support from the Government of Malaysia in respect of the deferred obligations of PKA to KDSB and/or reduced willingness on the part of PKA to honour its obligations. MARC believes this could arise as a result of the ongoing politically charged debate over the legal implications of the letters of support issued by the Transport Ministry to facilitate the financing of the PKFZ and the contention surrounding the manner in which the development contract was awarded and the contract sums. The outlook also incorporates uncertainty regarding the potential credit implications for the rated issuances arising from the eventual recommendations of the task force and committees that have been charged with the responsibility of finding a solution for PKFZ. MARC will reassess the currently high government support that is factored into the ratings of the four issuances after obtaining sufficient clarity on PKA’s intended course of action. If this results in a change in our rating assumption of the government’s intention to protect the position of existing bondholders notwithstanding the absence of an explicit guarantee for the rated issuances, MARC will likely lower the ratings.
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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