This article first appeared in The Edge Financial Daily, on December 18, 2015.

KUALA LUMPUR: Samalaju Industrial Port Sdn Bhd plans to raise up to RM950 million via sukuk issuance, to finance the construction of its 156ha deep-sea Samalaju Port in Sarawak.

RAM Ratings, which has assigned an AA1(s)/stable rating to Samalaju’s proposed Sukuk Murabahah programme, said Samalaju will be the operator of the RM1.9 billion Samalaju Port upon its expected completion by the fourth quarter of financial year 2016, under a 40-year contract.

The construction of the port will also be financed with a government grant of RM500 million, and an equity injection from Samalaju’s parent company Bintulu Port Holdings Bhd (BPHB) of RM600 million.

RAM Ratings said its rating on the programme reflects an unconditional and irrevocable corporate guarantee from BPHB (rated AA1/stable/P1).

“In view of BPHB’s solid relationship with the Malaysian government — given the latter’s shareholdings in BPHB through various government agencies, the Sarawak government and Petronas (Petroliam Nasional Bhd) — the state is seen as having an incentive to provide the company with financial assistance, which includes subscribing to a portion of the proposed sukuk, if necessary,” the statement read.

As such, it “believes the company will continue to derive financial flexibility from BPHB and the state”.

Construction of the port is ongoing but certain delays have pushed Samalaju 6.7 months behind schedule, RAM Ratings said. Hence, it has factored in an additional RM61.3 million construction cost overrun in projections against Samalaju’s estimate of RM28.4 million, and assumed a lower cargo volume after the port becomes fully operational, as six energy-intensive companies that will operate at the Samalaju Park have not made any long-term throughput commitment to the port.

Meanwhile, the port’s proposed tariffs, although approved by the state government in October, have yet to be gazetted even though it is expected to be completed by end-2015.

“We highlight that the company’s earnings and cash flow will come under further pressure should the gazetted tariffs be lower than the proposed tariffs,” said RAM Ratings.

However, it said any additional debt would be subordinated to the proposed sukuk in terms of coupon, tenure and security.

The port is anticipated to handle up to 46 million tonnes when completed and will function as a logistical hub for the import of raw materials and export of finished products from heavy-industry companies located at the Samalaju Park.