KUALA LUMPUR: Malaysian Rating Corp Bhd (MARC) has downgraded its ratings on Tanjung Langsat Port Sdn Bhd's debt notes to reflect a further erosion of its credit and operating profile.
MARC said on Thursday, Aug 18 it lowered the ratings of the RM250 million Sukuk Musyarakah bonds and RM135 million Musyarakah commercial papers/medium term notes programme (MCP/MMTN) to A-IS and MARC-2ID/A-ID from AA-IS and MARC-1ID/AA-ID respectively.
The outlook on the ratings remains negative, said the rating agency, pointing out the 'negative outlook on the ratings reflects increased concerns over Tanjung Langsat Port's ability to stem its operating losses and cash flow deficits'.
MARC also pointed the downgrades were to reflect further erosion of Tanjung Langsat Port's credit and operating profile during 2010. This, it said, was due to the still lingering effects of the 2008 fire incident at its tank terminal complex and its depleting unencumbered land bank.
Of concern, said the ratings agency, was Tanjung Langsat Port's larger-than-expected revenue decline and operating cash flow deficit in 2010.
It said this had raised concerns over the cash flow and liquidity risks related to certain long outstanding balances due to its contractors for port CONSTRUCTION [] and dredging works.
Due to its depleted unencumbered land bank and current operating challenges, MARC expected Tanjung Langsat Port to become increasingly dependent on liquidity support from parent, Johor Corporation (JCorp), to fund cash flow and debt service shortfalls.
'The negative outlook on the ratings reflects increased concerns over Tanjung Langsat Port's ability to stem its operating losses and cash flow deficits,' it said.
MARC said it came to understand although one of the eight tanks at Tanjung Langsat Port's tank terminal complex was certified as ready for operations in March 2010 followed by four more tanks in May 2010 and the sixth tank in early 2011, the storage facilities were not in use by the sole lessee, Trafigura Pte Ltd.
MARC said it was informed the remaining two tanks which were earlier damaged by fire should be ready to resume operations by end-2011.
Consequently, Tanjung Langsat Port's tank terminal complex operations have not generated any revenue since the fire incident in August 2008, resulting in estimated monthly revenue losses of RM550,000.
Tanjung Langsat Port recently sold its remaining unencumbered land holdings, raising total proceeds of RM134.9 million to partially pay down the RM216.1 million due to contractors.
The company urgently needs to restore its cash flow and earnings through higher utilisation of its tank terminal complex, and dry and liquid cargo wharves beginning from the second half of 2011 to maintain compliance with its financial covenants and to meet its 2012 note maturities of RM20.0 million.
MARC said it expected Tanjung Langsat Port to further require further financial support from its parent to maintain compliance with its financial covenants.
Based on its latest consolidated audited financial statements ended Dec 31, 2010, Tanjung Langsat Port's revenue declined to RM63.59 million (FY2009: RM100.15 million) due to lower land sales.
Higher administrative expenses and finance costs, as well as RM14.7 million of write-offs from insurance receivables relating to the fire incident led Tanjung Langsat Port'' to record pre-tax losses of RM24.3 million (FY2009: pre-tax profit of RM16.1 million).
Tanjung Langsat Port had initiated legal proceedings against its insurer on May 5, 2011 to recover these sums.
MARC noted the conversion of amounts due to Tanjung Langsat Port's parent into equity during 2010 which had the effect of lowering Tanjung Langsat Port's debt-to-equity ratio to 1.68 times (FY2009: 3.33 times) against its covenanted debt-to-equity ratio of 4.0 times.
'At the same time, the rating agency considers the parent's probability of providing further support as low to moderate in light of JCorp's own heavy debt burden,' it said.
MARC said it would continue to monitor Tanjung Langsat Port's operating trends as well as key financial metrics.
It added that it would 'consider revising the outlook to stable if Tanjung Langsat Port is able to stabilise its financial and operating performance, and halt further erosion in its credit profile'.
MARC also said for Tanjung Langsat Port to maintain its current ratings, the latter had to show it could generate adequate earnings and operating cash flow on a consistent basis.
'The ratings may be lowered if Tanjung Langsat Port is unable to stabilise its performance in the near-term and turn itself around,' it said.
MARC said on Thursday, Aug 18 it lowered the ratings of the RM250 million Sukuk Musyarakah bonds and RM135 million Musyarakah commercial papers/medium term notes programme (MCP/MMTN) to A-IS and MARC-2ID/A-ID from AA-IS and MARC-1ID/AA-ID respectively.
The outlook on the ratings remains negative, said the rating agency, pointing out the 'negative outlook on the ratings reflects increased concerns over Tanjung Langsat Port's ability to stem its operating losses and cash flow deficits'.
MARC also pointed the downgrades were to reflect further erosion of Tanjung Langsat Port's credit and operating profile during 2010. This, it said, was due to the still lingering effects of the 2008 fire incident at its tank terminal complex and its depleting unencumbered land bank.
Of concern, said the ratings agency, was Tanjung Langsat Port's larger-than-expected revenue decline and operating cash flow deficit in 2010.
It said this had raised concerns over the cash flow and liquidity risks related to certain long outstanding balances due to its contractors for port CONSTRUCTION [] and dredging works.
Due to its depleted unencumbered land bank and current operating challenges, MARC expected Tanjung Langsat Port to become increasingly dependent on liquidity support from parent, Johor Corporation (JCorp), to fund cash flow and debt service shortfalls.
'The negative outlook on the ratings reflects increased concerns over Tanjung Langsat Port's ability to stem its operating losses and cash flow deficits,' it said.
MARC said it came to understand although one of the eight tanks at Tanjung Langsat Port's tank terminal complex was certified as ready for operations in March 2010 followed by four more tanks in May 2010 and the sixth tank in early 2011, the storage facilities were not in use by the sole lessee, Trafigura Pte Ltd.
MARC said it was informed the remaining two tanks which were earlier damaged by fire should be ready to resume operations by end-2011.
Consequently, Tanjung Langsat Port's tank terminal complex operations have not generated any revenue since the fire incident in August 2008, resulting in estimated monthly revenue losses of RM550,000.
Tanjung Langsat Port recently sold its remaining unencumbered land holdings, raising total proceeds of RM134.9 million to partially pay down the RM216.1 million due to contractors.
The company urgently needs to restore its cash flow and earnings through higher utilisation of its tank terminal complex, and dry and liquid cargo wharves beginning from the second half of 2011 to maintain compliance with its financial covenants and to meet its 2012 note maturities of RM20.0 million.
MARC said it expected Tanjung Langsat Port to further require further financial support from its parent to maintain compliance with its financial covenants.
Based on its latest consolidated audited financial statements ended Dec 31, 2010, Tanjung Langsat Port's revenue declined to RM63.59 million (FY2009: RM100.15 million) due to lower land sales.
Higher administrative expenses and finance costs, as well as RM14.7 million of write-offs from insurance receivables relating to the fire incident led Tanjung Langsat Port'' to record pre-tax losses of RM24.3 million (FY2009: pre-tax profit of RM16.1 million).
Tanjung Langsat Port had initiated legal proceedings against its insurer on May 5, 2011 to recover these sums.
MARC noted the conversion of amounts due to Tanjung Langsat Port's parent into equity during 2010 which had the effect of lowering Tanjung Langsat Port's debt-to-equity ratio to 1.68 times (FY2009: 3.33 times) against its covenanted debt-to-equity ratio of 4.0 times.
'At the same time, the rating agency considers the parent's probability of providing further support as low to moderate in light of JCorp's own heavy debt burden,' it said.
MARC said it would continue to monitor Tanjung Langsat Port's operating trends as well as key financial metrics.
It added that it would 'consider revising the outlook to stable if Tanjung Langsat Port is able to stabilise its financial and operating performance, and halt further erosion in its credit profile'.
MARC also said for Tanjung Langsat Port to maintain its current ratings, the latter had to show it could generate adequate earnings and operating cash flow on a consistent basis.
'The ratings may be lowered if Tanjung Langsat Port is unable to stabilise its performance in the near-term and turn itself around,' it said.
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