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09 Feb | Tuesday
RAM Ratings assigns AAA rating to Westports’ sukuk
RAM Ratings has assigned a long-term AAA/stable rating to Westports Malaysia Sdn Bhd’s (Westports or the Company) RM2.0 bil Sukuk Musharakah Programme 2011/2031 (the Sukuk). Westports operates Malaysia’s largest container terminal and multi-cargo port (the Port). The Company’s Privatisation Agreement with the Port Klang Authority and the Government of Malaysia runs up to 2054.
 
The rating reflects the Port’s strong market position, supported by its strategic location along the Straits of Malacca - among the world’s busiest trade routes - and its established relationships with international mega shipping liners. With a natural depth of 17.5 meters, the Port’s competitive position is enhanced by its ability to handle ultra large container vessels. Highlighting its strong operating efficiency, Westports’ profitability metrics and leverage indicators are superior to its peers’, despite charging competitive tariffs.
 
The above strengths are moderated by the inherent cyclicality of Westport’s transshipment volume, which is highly dependent on global and regional trade flow.  That said, Westport’s increasing proportion of gateway cargo (comprising export from and import to Malaysia) in recent years is positive, as it is more stable and lucrative. Elsewhere, Westport faces high customer concentration risk and tariff pressure; four shipping liners under the Ocean Alliance handle about half of the total throughput of the Port.
 
The stable outlook, meanwhile, reflects Westport’s resilient and stable operational and financial performance despite the COVID-19 pandemic, which has disrupted global supply-chain management and trade flows. The Company had maintained its operational and financial showing in FYE Dec 2020. Revenue rose 11% y-o-y to RM1.97 bil on the back of a +3% growth in gateway cargo while transshipment experienced an -7% contraction in volume. Its OPBDIT came up to RM1.17 bil (y-o-y +10.8% increase from RM1.05 bil) with a corresponding margin of 59.1% for the same period. The impact of COVID-19 on the Port has been rather subdued, thanks to China’s fulfilment of Europe and North America’s stronger demand for goods following the relaxation of global movement restrictions in 2Q 2020 and the shift in consumption to more goods instead of services. Sturdy and more lucrative gateway throughput had provided some buffer against the decline in transshipment throughput. 
 
Westport’s financial profile is superior.  Its funds from operations to debt cover (FFODC) ratio has been hovering above 0.60 times in the last five years, despite operating in a capital-intensive industry. Its interest coverage has likewise, been robust at above 10 times. The Company also boasts of strong liquidity position, with close to RM765.0 mil of cash reserves as at end-December 2020, comfortably covering its short-term debt obligations.
 
The Company’s Westport 2 aspirations – to double its capacity from 14 mil to 28 mil TEUs in the next 25-30 years – will entail sizeable investment. Assuming RM5.5 bil of capital expenditure (capex) over the next five years, as guided by the management, Westports’ financial metrics should stay healthy and supportive of its AAA rating. 
 
The Company is currently seeking approval from the sukukholders to appoint RAM as the rating agency for the Sukuk, in accordance with the Securities Commission’s Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework.
 
 
Analytical contact
Ruslena Ramli 
(603) 3385 2520
ruslena@ram.com.my
 
Davinder Kaur Gill
(603) 3385 2525
davinder@ram.com.my
 
Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my
 
Date of release: 9 February 2021
 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
 
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
 
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
 
Copyright 2021 by RAM Rating Services Berhad
source: RAM Ratings
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