RAM Assigns AAA Ratings On Westports RM5 Billion Sukuk

RAM Ratings has assigned an AAA/Stable rating to Westports Malaysia Sdn Bhd (Westports or the Company)’s proposed RM5 bil Sukuk Wakalah Programme and affirmed the same rating of its existing RM2 bil Sukuk Musharakah Programme.

Proceeds of the proposed Sukuk Wakalah will, amongst others, meet Westports’ funding needs under a recently executed supplemental Privatisation Agreement which covers the Company’s planned expansion under Westports 2. The Sukuk Wakalah Programme is eventually expected to replace the RM2 bil Sukuk Musharakah Programme. The first issuance under the Sukuk Wakalah Programme is anticipated by 2Q 2024. RAM said its credit metrics analysis is based on Westports’ guidance on its debt funding needs. Further issuances will warrant a reassessment of these metrics.

The proposed Sukuk Wakalah Programme is a significant milestone for the domestic capital markets as it would be Malaysia’s very first marine and port sector programme with the flexibility to issue sustainability and sustainability-linked sukuk. This leaves the door open for sustainability and sustainability-linked sukuk issuances as Westports continues its sustainability drive and better aligns to ESG-related goals. The first issuance will be for general working capital purposes. 

The AAA rating reflects the strong market position of the port operated by the Company (the Port), supported by its strategic location along the Straits of Malacca – among the world’s busiest trade routes – and Westports’ 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, its’ profitability metrics and leverage indicators are superior to its peers despite its competitive tariffs. Notwithstanding capital expenditure of up to RM5.0 bil that will be required between 2024 and 2028 for Westports 2, the ratings agency anticipates for the company’s minimum FFODC and maximum debt to OPBDIT ratio to be a respective 0.55 times and 1.70 times over the next two years, commensurate with an AAA rating.

These strengths, however, are moderated by the inherent cyclicality of transshipment volume, which is highly dependent on trade flows and, of late, heightened geopolitical risks.  In that respect, no material impact was observed from the route deviations due to the Red Sea crisis and port-call restrictions in Malaysian ports. High customer concentration risk and tariff pressures also weigh on the Company. Roughly half of the Port’s overall throughput is handled by four shipping liners within the Ocean Alliance, one of three major alliances. These long-standing customers have consistently contributed significant volumes, helping to mitigate the perceived concentration risk to some extent.

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