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Rating Action:

Moody's downgrades PSAI/PSAC's ratings to Aa1; outlook stable

16 Sep 2010

Approximately USD2.2bn in debt securities affected

Hong Kong, September 16, 2010 -- Moody's Investors Service has today downgraded the issuer and senior unsecured ratings of PSA International Pte Ltd (PSAI) and PSA Corporation Limited (PSAC) to Aa1 from Aaa. Moody's has also downgraded the rating on PSAI's Medium Term Notes Program to Aa1. The outlook for all ratings is stable.

This action concludes the rating review initiated on July 29, 2010.

RATINGS RATIONALE

"The one-notch downgrade reflects a modest adjustment to the very high shareholder support assumption factored into PSAI/PSAC's ratings," says Elizabeth Allen, a Moody's VP/Senior Credit Officer.

"As we have previously commented, the trend towards internationalization by PSAI -- via the acquisitions it has made in the last five years or so -- warrant a slight reduction in such support assumption and a distinction between the ratings of these entities and their 100% owner Temasek Holdings (Pte) Ltd (Aaa/stable). Temasek is 100% owned by the Singapore government (Aaa/stable)," adds Allen.

Moody's recognizes that the status of PSAI and PSAC are critical to the Singaporean economy. Even with this adjustment, the expected level of support from Temasek remains very high. However, in the absence of any formal guarantee or of a special formalized government policy or legally granted status, and given the large gap between their fundamental credit profiles of A2 and A3 and their final ratings, the ratings of PSAI and PSAC warrant a slight distinction from that of Temasek.

The current support assumption is consistent with the level of support assumed for other government-related issuers (GRI) globally. It is also consistent with the approach taken in the rating of other Temasek-linked companies, such as Singapore Power Ltd (Aa3/stable) and Singapore Telecommunications Ltd (Aa2/stable). The level of support incorporated into their ratings also reflect their international presence.

The slight adjustment to the support assumption means that PSAI/PSAC's ratings could become sensitive to changes in their standalone credit fundamentals or their baseline credit assessments (BCAs).

PSAI's A3 and PSAC's A2 BCAs are underpinned mainly by their global market positions and dominant positions in the port of Singapore, as well as traditionally strong profitability and throughput growth. The group generates steady recurring cash flow and income -- even during difficult times in 2008 and 2009.

However, their BCAs are constrained by PSAI's modest consolidated financial profile, its overseas expansion, and the capital needs of some of its overseas ports, which are in their start-up phases.

PSAI's and PSAC's BCAs are closely linked. PSAC, the core cash flow and profit generator of the PSAI Group, is wholly owned by PSAI, such that its financial profile and policies are determined by PSAI. The one-notch difference between their BCAs reflects structural subordination at PSAI, which is the group's holding company and relies on dividends from its subsidiaries and investment to make its debt payments.

The stable outlook reflects Moody's expectation that PSAI/PSAC's underlying business and financial profile will remain steady and assumes no material changes to their ownership in the near term.

PSAI's and PSAC's ratings are sensitive to changes in Moody's expectation of the likelihood of support from the shareholders. The ratings could be downgraded if the rating of Temasek and/or the rating of the Singaporean government is downgraded.

Downward rating pressure could also emerge if evidence suggests weakening support from the shareholders, such as 1) a reduction in ownership, 2) material increase in debt leverage without new equity capital, 3) further material overseas acquisitions or investments.

A reduction of their BCAs would put pressure on the rating. Their BCAs could be under pressure if the consolidated credit metrics of PSAI deteriorate, including debt/EBITDA exceeding 5-5.5x and retained cash flow/debt below 10% on a consistent basis.

Moody's last rating action on PSAI and PSAC was taken on July 29, 2010, when Moody's put their Aaa ratings on review for possible downgrade.

The principal methodology used in rating PSAI and PSAC was Government-Related Issuers: Methodology Update published in July 2010. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

PSAI/PSAC's ratings have been assigned based on factors that Moody's believes are relevant to their risk profiles, such as their (i) business risk and competitive position compared with other firms within the industry; (ii) capital structure and financial risk; (iii) projected performance over the near to medium terms; and (iv) management's track record and tolerance for risk. These attributes were compared to those of other issuers both in and outside PSAI/PSAC's core industry; the company's ratings are considered comparable to those of other issuers of similar credit risk.

PSAI, one of the world's largest port operators, participates in 28 port projects in 16 countries across Asia, Europe, and the Americas. It handles a container throughput of 56.9 million twenty-foot equivalent units (TEUs) globally. Its wholly owned subsidiary, PSAC, has a dominant market share in the port of Singapore, the busiest port in the world.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Hong Kong
Elizabeth Allen
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Hong Kong
Gary Lau
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)

Moody's downgrades PSAI/PSAC's ratings to Aa1; outlook stable
No Related Data.
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