KUALA LUMPUR (Aug 16): Johor Port Bhd is planning to issue Islamic commercial papers and start an Islamic medium-term programme with a combined value of RM1 billion.

MARC Ratings has assigned preliminary ratings of MARC-1IS/AA-IS to the port operator’s bond scheme with a stable outlook, it wrote on its website on Tuesday.

The company operates a gateway port in Pasir Gudang, under a concession agreement expiring on Dec 31, 2052.

According to MARC, the assigned ratings are mainly driven by Johor Port's established position as an integral port for southern Malaysia and its long operating track record in conventional and container cargo services, adding that its ability to generate strong and steady operating cash flows is a key rating consideration.

“The rating is moderated by its exposure to the vagaries of regional trade activities, and uncertain timelines on tariff revisions,” said the rating agency.

Johor Port has been able to generate a steady performance as it posted higher revenue and operating profit of RM326.9 million and RM123 million respectively in the first half of this year (1H22) due to improved economic activities following the lifting of pandemic restrictions and a revised tariff implementation effective Oct 1, 2021, said the rating agency.

“Even so, we note that the impact of the pandemic closures has been modest due to its position as a key port for essential goods, noted MARC.

As at end-June 2022, MARC said the port had a container capacity of 1.5 million twenty-foot equivalent units (TEUs) and 24 million freight weight tonnage (FWT) of conventional cargo; compared with 900,000 TEUs and 18.4 million FWT in 2021.

“Near-term capex totalling RM326  million involves extending its liquid jetty, strengthening terminals, and upgrading port equipment. The capex is expected to be funded through a mixture of internal funds and borrowings,” said MARC.

Meanwhile, the company’s cash flow from operations (CFO) is expected to remain strong on the back of healthy earnings before interest, tax, depreciation and amortisation margin of about 55% over the foreseeable future.

According to MARC, a CFO of RM240 million in 2021 translated to a CFO interest coverage of 7.13 times.

On the other hand, the bulk of total borrowings of about RM770 million as at end-June 2022 are expected to be refinanced with proceeds from the issuance of the bond.

“Leverage ratio is expected to remain at around 0.7 times in the near term. While we note Johor Port has been a key dividend contributor to parent MMC Port Holdings Sdn Bhd, we expect the company to maintain a balance between dividend distribution and its internal requirement,” it added.

The Securities Commission Malaysia’s website showed that the lodgement of the bond was made last Thursday (Aug 11) and RHB Investment Bank Bhd is the principal adviser for the exercise.