MARC has affirmed its AAAID(S) rating on Kuching Port Authority's (KPA) RM180.0 million Al-Bai' Bithaman Ajil Islamic Debt Securities (BaIDS) with a stable outlook. The rating action affects the outstanding BaIDS of RM30.0 million. The rating is aligned to MARC's public assessment on the Sarawak State Government (SSG) on the basis of KPA's status as a state-owned statutory body and state support provided through a letter of support in respect of the BaIDS. The affirmed rating also incorporates the sufficiency of contingency arrangements for the provision of liquidity in the form of committed standby credit lines.
MARC has a public information rating of AAA/Stable on Sarawak based largely on the state's strong economic growth, prudent fiscal management and strong liquidity position relative to its debt levels. KPA is the operator of Kuching Port which mainly serves the state capital, Kuching. The port's two terminals, namely Pending Terminal and Senari Terminal, have an annual capacity of 2.9 million tonnes and 7.0 million tonnes respectively and are located close to several light industrial zones. The Pending Terminal handles the roll-on/roll-off (motor vehicle) and conventional cargoes while the container business is routed through the Senari Terminal. Kuching Port's operating performance has improved over the years in line with its cargo throughput growth, but revenue growth has been low. This is due to the unchanged port tariff structure since 1984 which has contributed to KPA's low profitability and weak liquidity position.
MARC notes that since the imposition of trade restrictions on certain imports by the Indonesian government in February 2014 to protect its local industries, Kuching Port's cargo throughput has declined for the first time since 2009 to 9.23 million tonnes (2013: 9.98 million tonnes). This was mainly attributed to a drop in trade activities of its inland port at Tebedu which facilitates cross-border trade between Sarawak and West Kalimantan. The decrease in cargo throughput led to lower cargo handling charges which was offset by higher overtime storage charges as a result of the aforementioned trade restrictions. Revenue declined marginally to RM58.4 million (2013: RM59.3 million). Operating profit margin, however, deteriorated to 31.8% compared to 38.5% in 2013 due to rising staff costs. The port's subdued performance could prolong if the current cross-border trade embargo is not resolved.
As a result of a decrease in cargo revenue, cash generated from operating (CFO) activities declined to RM23.1 million from RM29.8 million in the previous year. The lower CFO, coupled with higher capital expenditure of RM3.1 million, led to a depletion of cash balances to RM6.4 million as at end-December 2014. The capital expenditure was for the upgrading and dredging works carried out at the Pending Terminal and Senari Terminal. The port authority's CFO continues to be insufficient to cover its debt repayment, causing it to be reliant on credit facilities since 2013. In 2014, KPA drew down RM16.5 million from its existing credit facilities to meet a total debt obligation of RM35.5 million during the year. Aside from the designated accounts balance of RM15.3 million as at end-June 2015, the port authority is expected to draw down on its unutilised credit lines of RM69.0 million to meet the final BaIDS repayment of RM30.0 million due on December 24, 2015. Post-redemption of the BaIDS, KPA's outstanding borrowings will mainly comprise term loans and revolving credits that would probably be repaid via internally generated funds over the next six years.
Notwithstanding concerns over KPA's weak liquidity, any downside risk in relation to KPA's credit profile is mitigated by the state providing contingency arrangements of liquidity support throughout the remaining tenure of the BaIDS. Any changes in the rating and/or outlook would mainly be driven by a revision of the credit rating of the state of Sarawak and/or a weakening of SSG's support.
Contacts: Jasmine Kua, +603-2082 2280/ jasmine@marc.com.my; David Lee, +603-2082 2255/ david@marc.com.my.
© Press Release 2015
