Wednesday, September 7, 2011

RAM Ratings reaffirms Sabah Ports debt ratings

KUALA LUMPUR: RAM Rating Services has reaffirmed Sabah Ports Sdn Bhd's ratings on its debt notes, with a stable outlook.

It said on Wednesday, Sept 7 it had maintained the AA3 and AA3/P1 ratings of the company's RM80 million Bai' Bithaman Ajil debt securities (2007/2017) (BaIDS) and RM70 Million Murabahah underwritten notes issuance facility/Islamic medium-term notes facility (2007/2014) (MUNIF/IMTN).

RAM Ratings said Sabah Ports played an important role in supporting Sabah's economy as shipping was the most cost-effective method of transporting imports and exports, which constitute commodities such as palm oil and petroleum.

"While Sabah Ports' first right of refusal with respect to all new port undertakings outside its port limits ended in 2009, we believe there is limited need for another major port as the existing facilities effectively cater to Sabah's main population and economic centres," it said.

The ratings agency said the company's strong operating track record further rules out the possibility of new port operators replacing the services it provides.

Sabah Ports maintained its steady financials in fiscal 2010 as reflected in the 12.2% increase in revenue to RM211.68 million on the back of a steady rise in cargo volume handled.

Profitability stayed strong as the company registered a margin on adjusted operating profit before depreciation, interest and taxation of 58.4%, backed by ongoing cost-cutting initiatives.

RAM Ratings said adjusting for lease obligations, Sabah Ports' debt level stood at RM557.91 million as at end-December 2010, which translated into a gearing ratio of around 1.0 time and a lease-adjusted funds from operations debt coverage (FFODC) ratio of 0.24 times.

"Looking forward, we expect the company to maintain a sound balance sheet and steady debt-coverage measures over the next 5 years, with a projected average gearing ratio of 0.67 times and an FFODC ratio of 0.22 times," it said.

The ratings agency said the ratings were still moderated by the capital-intensive nature of Sabah Ports' business and its sensitivity to economic cycles.

On that note, the company's future capital commitments are expected to be largely covered by internal funds. While the Asian financial crisis (1997/98) and the more recent global financial slump (2008/09) had led to contractions in Sabah Ports' cargo volumes, liquid cargo - which is generally more lucrative and accounts for around half of the Company's annual throughput - had held steady, without any volume contraction.

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