by HARIZAH KAMEL/ pic credit: penangport.com.my

PENANG Port Sdn Bhd’s (PPSB) proposed Islamic medium-term notes (sukuk wakalah) programme of up to RM1 billion has been assigned a final rating of AA-IS with a ‘Stable’ outlook by Malaysian Rating Corp Bhd (MARC).

MARC said yesterday upon review of the final documentation for the programme, it is satisfied that the terms and conditions have not changed in any material way from the draft documentation on which the earlier preliminary rating of AA-IS was based.

In a statement on Nov 27, MARC said the rating carries a ‘Stable’ outlook and that PPSB operates Penang Port under a long-term concession agreement expiring on Dec 31, 2041.

Proceeds from the proposed issuance will be entirely used to refinance PPSB’s maturing RM1 billion loan, which was taken to finance the port’s capacity expansion in 2008.

The rating was driven by Penang Port’s strategic importance as a pivotal trade gateway in northern Malaysia and PPSB’s established track record in providing container and conventional cargo handling services that enables the port operator to generate steady cashflow.

Moderating the rating is PPSB’s high leverage position largely due to a modest growth in sharehol- ders’ funds over the years.

Additionally, the port operator could face challenges to turn-around the ferry services segment if the loss-making Penang commuter ferry services are reabsorbed into PPSB’s operations.

Penang Port’s close location to manufacturing centres in the state and involvement in rubberwood production in southern Thailand are key factors for the port’s growth.

PPSB has also benefitted from improved operating and cost efficiencies from being part of MMC Corp Bhd, a major domestic port operator. It became a wholly owned subsidiary of MMC Port Holdings Sdn Bhd in May 2018.

The port recorded a container handling capacity of 2.1 million twenty-foot equivalent units (TEUs) and a conventional cargo handling capacity of 9.6 million freight weight tonnes in 2018.

PPSB plans to expand its handling capacity and improve productivity measures for which it has earmarked about RM674 million between 2019 and 2023.

“This is expected to be funded by internal cash generation. MARC views the staggered capital expenditure programme over a four-year period would not have a material impact on free cashflow generation,” the rating agency said.

The expansion, MARC said, is expected to result in a 25% increase in container volume capacity to 2.5 million TEUs over the near term. Penang Port’s productivity measures are comparable with that of its peers.

Its utilisation rate of the container terminal stood at around 71.9%. The rate is likely to be constrained going forward by the additional capacity coming onstream, as well as geopolitical risks that could weigh on global trade volume.

“Any decline in global trade would be moderated by renewed economic activities in Penang due to the substantial increase in approved investments in the state to RM129.1 billion in 2018,” it added.