MARC has downgraded its rating on Malaysian International Tuna Port Sdn Bhd’s (MITP) RM240.0 million Bai’ Bithaman Ajil Islamic Securities (BAIS) to BB+ID from A+ID while maintaining the rating on MARCWatch Negative, where it was first placed on February 19, 2009. MARC’s last rating update on August 4, 2009 had highlighted a potential capital injection of some RM32 million by a government-related entity (GRE) to alleviate MITP’s immediate liquidity constraints. However, the capital injection has yet to be received despite the assurance given to BAISholders by the Ministry of Agriculture and Agro-Based Industry (MOA) in April 2009 that support would be forthcoming from the government. MITP’s delay in accessing urgent funding for its BAIS obligations contributed to its recent failure to meet its RM10 million sinking fund payment due on October 19, 2009 in respect of its upcoming profit payment due on November 17, 2009. Accordingly, the lowered rating and the continued MARCWatch placement reflects increased vulnerability of MITP to non-payment of its BAIS obligations in the absence of full and timely financial support from the government.

MARC’s initial rating on MITP had taken into consideration the letter of support issued by the MOA to back the rated obligations as well as the 40% shareholding in MITP held by government agency, Lembaga Kemajuan Ikan Malaysia (Fisheries Development Authority of Malaysia, or LKIM). Under the 32-year concession to manage, operate and develop the tuna port, LKIM possesses step-in rights to assume the operations of the port if an event of default, as defined by the Concession Agreement, occurs. However, the rights do not oblige the statutory body to assume the liabilities of MITP. MARC had also highlighted a notice of breach by the trustee to MITP for failing to provide information on its plan to remedy a shortfall in its Finance Service Reserve Account 2 (FSRA) within 60 days from the notice date of February 10, 2009, among others. To date, the BAISholders have not reached any decision to waive, grant indulgence or declare an event of default in respect of MITP’s breach of its obligation to provide information.

The continued MARCWatch placement incorporates the possibility that the rating could be lowered to ‘D’ in the event MITP seeks a deferral of the profit payment and/or fails to make the profit payment on November 17, 2009.  On the other hand, the rating could be affirmed and removed from MARCWatch if a favourable resolution of our concerns over MITP’s current vulnerability to non-payment of profit on the BAIS is achieved either ahead of or on November 17, 2009.

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