MARC has affirmed its ratings on the four special purpose vehicle debt issuances which are supported by deferred payment receivables from Port Klang Authority (PKA) in respect of the land purchase and development costs of the Port Klang Free Zone (PKFZ) as follows:

1. Special Port Vehicle Berhad’s RM1,310 million Asset-Backed Serial Bonds at AAA;
2. Transshipment Megahub Berhad’s RM1,095 million Fixed Rate Serial Bonds (FRSB) at AAA and its RM360 million Commercial Papers/Medium Term Notes (CP/MTN) Programme at MARC-1/AAA; 
3. Valid Ventures Berhad’s RM510 million FRSB at AAA and its RM85 million CP/MTN Programme at MARC-1/AAA; and
4. Free Zone Capital Berhad’s RM410 million FRSB at AAA and its RM70 million CP/MTN Programme at MARC-1/AAA.

The rating actions reflect MARC's continued alignment of the ratings with the fundamental creditworthiness of the federal government of Malaysia on the basis of the latter's willingness and capacity to support the deferred obligations of PKA under the respective agreements between the two parties relating to the purchase of land and development of PKFZ. The federal government has continued to abide by the support letters issued by the Ministry of Transport (MOT) notwithstanding uncovered irregularities surrounding the issuance of the four letters and widening anti-corruption and fraud probes involving amongst others, turnkey developer Kuala Dimensi Sdn Bhd (KDSB). The contractual deferred payments to the four special purpose entities continue uninterrupted, supporting the timely payment of their respective rated obligations, thus far averting payment default on the rated obligations. The recent experience with government behaviour leads MARC to believe that the federal government will continue to support the contractual payments to all four entities.

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. To date, the project's actual occupancy remains low and is still generating insufficient revenue to cover its operating expenses. PKA's payments to KDSB continue to be largely funded by an RM4,632 million soft loan from the Ministry Of Finance. The committed nature of the repayment source for the rated obligations continues to mitigate PKA's weak stand-alone credit profile, as its status as a statutory corporation under the purview of the MOT.

MARC has maintained its negative outlook on all the ratings to reflect the possibility of waning government support over time for the timely payment of obligations as a result of increased political opposition to the perceived RM4,632 million bail-out by the government. A revision of MARC's support assumptions will very likely result in negative rating pressure. The negative outlook also incorporates increased uncertainty as to the timeliness of payment transfers from PKA, as witnessed with earlier incidences of non-compliance with the required build-up of debt reserves ahead of payment dates. The foregoing increases the risk of a credit cliff situation in which the debt rating(s) of one or more of the four issuers could be lowered to 'D' upon the occurrence of missed payment. MARC will monitor the developments closely to resolve the negative outlook. 

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