RAM Ratings assigns AA1 rating to Bintulu Port Holdings Berhad

26 November 2015RAM Ratings has assigned AA1/Stable/P1 corporate credit ratings to Bintulu Port Holdings Berhad (BPHB or the Group). The ratings mainly reflect our view of BPHB as a government-linked entity and the high likelihood of extraordinary support from both the Federal and State governments. Bintulu Port is a natural deepsea port that functions as a key import and export gateway as well as

Press Release

November 27, 2015

26 November 2015

RAM Ratings has assigned AA1/Stable/P1 corporate credit ratings to Bintulu Port Holdings Berhad (BPHB or the Group). The ratings mainly reflect our view of BPHB as a government-linked entity and the high likelihood of extraordinary support from both the Federal and State governments. Bintulu Port is a natural deepsea port that functions as a key import and export gateway as well as the nation's only liquefied natural gas (LNG) export terminal. In meeting the Sarawak Corridor of Renewable Energy's agenda to develop and transform Sarawak into a developed state by 2020, BPHB will be expanding its capacity and taking on the development of Samalaju Port, which will see it shoulder a substantial debt load and impinge on its current strong financial position. Samalaju Port will be functioning as a logistical hub for the import of raw materials and the export of finished products from heavy and energy-intensive industries within Samalaju Industrial Park.

Prior to the corporatisation of Bintulu Port Sdn Bhd, Bintulu Port Authority (BPA) had been established as a Federal Statutory Body under the Bintulu Port Authority Act 1981 to operate Bintulu Port. The Government of Malaysia (GoM), besides holding a special share, still exercises substantial control indirectly via its stake in BPHB through its various agencies, the Sarawak State (the State) Government and Petroliam Nasional Berhad (Petronas). Given BPHB's strategic importance, the GoM extended a RM500 million grant to the Group for the construction of Samalaju Port in 2014. The export of LNG out from Bintulu Port contributes nearly 5% of Malaysia's annual GDP. LNG has been the major cargo item handled at Bintulu Port since its inception, thanks to Petronas' long-term LNG export agreements averaging 15-20 years with Japan, South Korea, Taiwan and China. This has also turned Bintulu Port into Malaysia's leading liquid-bulk port.

BPHB's profit performance has remained solid over the last 5 years, with a margin on adjusted operating profit before depreciation, interest and tax (OPBDIT) of more than 60%. While the Group has been able to finance its capex via internal funds, its debt load is envisaged to increase to fund the construction of Samalaju Port and the future expansion of Bintulu Port. Part of the construction of Samalaju Port will be funded by Samalaju Industrial Port Sdn Bhd's proposed Sukuk Murabahah Programme of up to RM950 million, which will be guaranteed by BPHB. Given the impending debt, we expect the Group's adjusted gearing ratio to deteriorate from 0.04 times in FY Dec 2014 to an average of 2.3 times over the next 5 years while its average adjusted funds from operations (FFO) debt coverage would weaken to 0.16 times (adjusted FFO debt coverage as at end-FY Dec 2014:6.75 times).

Notably, the Bintulu Port Privatisation Agreement (PA) is co-terminous with Bintulu Port's operating licence, which is due to expire on 31 December 2022. According to the PA, Bintulu Port has the option of extending its tenure of operations for about 30 years, at the discretion of the BPA. We believe that the risk of its port operating licence not being renewed is minimal given that the Prime Minister's Department has already extended its approval in principle (in October 2014) for consideration of the renewal of the Group's operating licence for another 30 years. The approval in principle states that the extension will be considered upon the submission of an application to the GoM, which will be subject to negotiation.

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Media contacts
Chinthamani Thanneermalai
(603) 7628 1013
chinthamani@ram.com.my

Davinder Kaur Gill
(603) 7628 1118
davinder@ram.com.my

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