MARC has placed its issue ratings on Tanjung Langsat Port Sdn Bhd (TLP) on MARCWatch Negative. The rating action affects the following issuances: TLP's RM250.0 million Sukuk Musyarakah (Sukuk Musyarakah) rated at AA-IS, and its RM135 million Musyarakah Commercial Papers/Musyarakah Medium Term Notes Programme (MCP/MMTN) rated at MARC-1ID/AA-ID. The MARCWatch Negative placement reflects MARC's concerns over a potential shortfall in TLP's Finance Service Reserve Account (FSRA) as well as its less than satisfactory operating performance. MARC is in the midst of completing its review on the ratings and has received confirmation from the trustee that balance of the FSRA amounts to RM0.28 million as at December 14, 2009. MARC understands that TLP will be able draw on its RM4.84 million of fixed deposits to satisfy its minimum 50% FSRA build up by February 2010. As at the date of this rating action, however, TLP has not been able to provide MARC with adequate assurance regarding its ability to satisfy the entire amount of its Sukuk profit payment due in May 2010. MARC believes that TLP is relying on proceeds from the sale of land to fund the minimum required balance on its FSRA. Of concern to MARC is the potential for delay in the receipt of land sale proceeds given the urgency with which TLP’s FSRA payment obligations have to be met. MARC believes that TLP may also rely on its parent, Johor Corporation Berhad (JCorp), to provide advances in order to comply with the scheduled FSRA payments, particularly given its current lack of operational cash flow visibility.

TLP faces several near-term challenges as the port is not fully operational and has also suffered a setback in its profitability and operating performance. TLP's current liquidity position and financial measures are weaker than had been anticipated in existing ratings as a consequence of delays in land sales which were expected to occur in 2009 and two oil storage tanks which are currently non-revenue generating following a fire incident in August 2008. MARC understands that these tanks are being rebuilt and expected to be fully operational in 2010. During the six-month period ended June 30, 2009, TLP’s revenue was reported at RM2.70 million (FY2008: RM85.51 million) whilst the company made an operating loss of RM2.76 million (FY2008: operating profit of RM12.58 million).

Wholly-owned by JCorp, TLP was incorporated in 1995 and commenced operations in 2003. The port has a total area of 763 acres and available shorelines of 3.5 km. TLP serves mainly the Tanjung Langsat hinterland in handling petroleum, petroleum products and biodiesel. TLP is in the midst of upgrading its infrastructure to accommodate larger vessels and constructing centralised tankage facilities for petroleum and petrochemical products. Proceeds from the issuances were mainly used to repay existing borrowings and to finance expansion of the Port of Tanjung Langsat and construction of storage tanks.

MARC will continue to monitor TLP's liquidity position and ongoing developments to assess the impact on its credit quality.

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