Westports Holdings Bhd is expected to invest up to RM10bil to double its container-handling capacity and the company will tap the bond market to partly finance this plan.

Sources told StarBiz that Westports, the largest port operator in the country, was considering options from the debt market such as sukuk and other forms of borrowings to finance the expansion besides using internally-generated funds.

“The approval for the capacity expansion is important as Malaysia needs to prepare itself to cater to the growing need for container-handling capacity from shipping lines,” said a source.

The increase in Westports’ capacity by 2040 will ensure that Port Klang keeps up with the planned consolidation and expansion of Singapore’s ports in Tuas as well as maintaining its lead against other planned terminals in Indonesia.

Last Friday, Westports said in a filing with Bursa Malaysia that it had secured the approval-in-principle from the Government for the expansion of its container terminal facilities (CT10 to CT19), which could handle up to 30 million twenty-foot equivalent unit (TEU) a year by 2040.

The proposed expansion of an additional 10 terminals is an extension of Westports’ current CT1 to CT9 development. The first phase of the development will be undertaken from 2019 to 2024.

“While the terms and conditions for Westports’ expansion are to be further discussed with the Government, the plan could cost the port operator as much as RM10bil,” said the source, adding that the cost for the first phase of CT10 to CT19 development is targeted at RM2bil.

The source indicated that it was unlikely that the company would raise funds from the equity market via a rights issue or a private placement exercise.

As of end-June 2017, Westports was in a net debt position of RM912.56mil.

The company sits on a cashpile of RM387.44mil while its main borrowing component stands at RM1.15bil of drawn-down sukuk facility.

The source said the proposed expansion should provide improvements to the company’s operational performance in line with the increasing container volume to be handled by the port operator.

Tan Sri G. Gnanalingam is the single largest shareholder of Westports, with an equity interest of 45%.

The Main Market-listed port operator has a market capitalisation of RM12.31bil, based on its last closing price of RM3.61 per shares.

As of end-2016, Westports handled 9.95 million TEUs compared with its current capacity to handle 12 million TEUs, indicating a utilisation rate of 83%.

The port operator is extending its container-handling capacity via the current development of CT1 to CT9 terminals.

The terminals, which are expected to be completed by next year, will expand Westports’ handling capacity to 16 million TEUs.

Together with CT10 to CT19 terminals, Westports can collectively handle up to 30 million TEUs.

“Westports is strategically located for expansion, as it has an excellent track record in operational capability, good connectivity via railway line, road and sea, and the availability of space for expansion to meet demand quickly.

Last year, Westports handled 18% of all containers passing through the Straits of Malacca, and 76% of containers in Port Klang.

An economic impact study by PricewaterhouseCoopers indicated that Westports’ expansion plan is expected to generate an economic output of RM55.3bil from 2021 to 2080.

It also found that the project could contribute about RM19bil to Malaysia’s gross domestic product over the 60-year period, generate over 6,000 jobs on average and act as a catalyst for trade growth.

Westports delivered a lower bottom line in its first half of financial year 2017, due to a weaker container volume caused by a sharp fall in transhipment volume.

The port operator’s net profit was down by 12.46% to RM289.71mil, compared with RM330.95mil in the preceding year corresponding period. This was despite its 3.55% higher top line in the first six months of financial year 2017.

Westports has projected a lower container throughput this year.

“Due to the ongoing changes in the container shipping industry, we expect our container throughput to be lower compared with the previous year by between 7% and 12%,” said the company in a filing with Bursa Malaysia.

RAM Rating Services Bhd also anticipated the industry’s throughput growth to remain in the low single-digit levels in 2017, but projected the container and cargo-handling prospects of Malaysian ports to remain healthy.

“Prospects for the key national ports – including Westports, Northport (M) Bhd and Pelabuhan Tanjung Pelepas Sdn Bhd – remain stable, benefiting from the strengthening local and regional economic outlook. Nonetheless, in the immediate term they are still vulnerable to the effects of the current trend towards protectionism and changes in shipping alliances,” said RAM Ratings in an earlier statement.

Source:
courtesy of THE STAR

by GANESHWARAN KANA

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