MARC has removed its AA-IS and MARC-1ID/AA-ID ratings on Tanjung Langsat Port Sdn Bhd’s (TLP) RM250.0 million Sukuk Musyarakah (Sukuk Musyarakah) and RM135 million Musyarakah Commercial Papers/Musyarakah Medium Term Notes Programme (MCP/MMTN) respectively from MARCWatch Negative where they were first placed on January 15, 2010. Concurrently, the ratings were affirmed and the ratings outlook has been revised to negative from stable.

The resolution of the MARCWatch Negative follows timely measures taken by TLP and its state-owned parent, Johor Corporation (JCorp), to mitigate near-term concerns over TLP’s ability to meet its May 2010 sukuk profit payments. TLP raised RM4.99 million through the sale of certain investment securities to JCorp. JCorp Group also recently provided advances of RM25.0 million to TLP. As a result, TLP has adequate near-term liquidity in its finance service reserve account (FSRA) to satisfy all of its upcoming semi-annual profit payments on the sukuk and notes, due in May and July 2010, respectively. The revision of ratings outlook to negative reflects uncertainty over TLP’s ability to maintain a financial profile commensurate with MARC’s expectations for the current ratings. Restoration of operations is taking longer than anticipated after a fire which damaged two of its oil storage tanks in August 2008.

Based on its latest consolidated audited financial statements ended December 31, 2009, TLP reported higher revenue of RM100.51 million (FY2008: RM85.51 million) whilst registering a pre-tax profit of RM8.45 million (FY2008: RM5.46 million), mostly on account of land sales amounting to RM91.02 million in December 2009. Notwithstanding, earlier operational losses have eroded TLP’s retained earnings and caused its debt-to-equity ratio to weaken to 3.32 times (FY2008: 2.89 times). Under the issue structure, TLP is required to maintain a ratio of borrowings to total tangible networth of not more than 80:20, or 4.0 times, and finance service cover ratio (FSCR) of at least 2.0 times based on its annual audited financial statements. TLP is in the midst of repairing the damaged tanks and expects the tanks to be fully operational by October 2010.

MARC believes that while TLP may still remain in compliance with its financial covenants in the near-term, owing to its land sales and financial support from JCorp Group, its continued compliance with covenanted measures depends on the port’s ability to achieve satisfactory throughput levels. Assurance of near-term debt service capacity is provided by confirmation from the trustee of the balance in the FSRA amounting to RM29.82 million as at April 20, 2010. This is sufficient to cover three profit payments on the sukuk and notes until May and July 2011 respectively.

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, petrochemical products and biodiesel. TLP has upgraded its infrastructure to accommodate larger vessels and constructed a centralised tank facility 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.

Going forward, MARC will continue to monitor operating trends as well as key financial measures at TLP and will consider revising the outlook to stable if meaningful operating profit and cash flow improvement materialise such that the company is able to come close to meeting its original financial projections. Conversely, the ratings may be lowered should the improvement in TLP’s financial measures in the next several months prove to be below MARC’s current expectations.

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