RAM Ratings reaffirms FEC Cables' AA2(s)/P1(s) ratings

Published on 13 October 2011
RAM Ratings has reaffirmed the respective enhanced long- and short-term ratings of AA2(s) and P1(s) for FEC Cables (M) Sdn Bhd’s (“FEC Cables” or “the Company”) RM130 million Islamic Medium-Term Notes Facility (2006/2019) and RM20 million Murabahah Underwritten Notes Issuance Facility (2006/2013) (collectively known as “the sukuk”); the long-term rating has a stable outlook. FEC Cables manufactures and sells power and telecommunication cables.

The enhanced ratings remain supported by the strongly worded letter of support (“LoS”) from Permodalan Nasional Berhad (“PNB”), the Company’s largest shareholder. This document states that PNB will ensure – either by equity, loans, grants and/or other means – that FEC Cables meets its financial obligations on the sukuk in a full and timely manner. The explicit support from PNB enhances the credit profiles of the sukuk beyond FEC Cables’ stand-alone credit risk. The LoS is, however, perceived as being short of an outright guarantee.

“RAM Ratings’ qualitative assessment also takes into consideration PNB’s past financial assistance to FEC Cables and its active involvement in the Company’s strategic direction. In this regard, we expect PNB to continue providing financial assistance to FEC Cables should the need arise,” points out Kevin Lim, Head of Consumer & Industrial Ratings.

Excluding the LoS, FEC Cables’ stand-alone credit profile is weak. The Company remained highly leveraged with its gearing ratio at 3.40 times as at end-December 2010. At the same time, its cashflow-protection metrics remain subdued by its weak-cashflow generating ability against its heavy debt burden. Meanwhile, FEC Cables is exposed to high customer-concentration risk as its 2 biggest customers, Tenaga Nasional Berhad and Telekom Malaysia Berhad, collectively accounted for more than 75% of its revenue in fiscal 2010. On top of operating in a keenly competitive environment, the Company is also susceptible to the price volatility of raw materials.

Media contact
Evelyn Khoo
(603) 7628 1075
evelyn@ram.com.my