MARC DOWNGRADES MAXTRAL INDUSTRY BERHAD'S ISLAMIC DEBT RATINGS, PLACES THE RATINGS ON MARCWATCH NEGA

MARC has downgraded its ratings on Maxtral Industry Berhad's (Maxtral) RM80 million Al-Bai' Bithaman Ajil Islamic Debt Securities (BaIDS) and RM20 million Murabahah Underwritten Notes Issuance/Murabahah Medium Term Notes (MUNIF/MMTN) facilities to BBB-ID and MARC-4ID/BBB-ID from BBB+ID and MARC-3ID/BBB+ID respectively. Concurrently, the ratings have been placed on MARCWatch Negative. The rating action affects RM20 million of BaIDS outstanding under the RM80 million BaIDS programme and RM20 million notes issued under the MUNIF/MMTN programme.

The ratings downgrade and MARCWatch placement reflects Maxtral's declining cash position and dependence on asset disposals to meet forthcoming debt repayments, stemming from a sustained contraction of its sales and negative cash flow generation. It also incorporates significant uncertainty as to the issuer's ability to accelerate asset disposals in order to address its forthcoming sinking fund build-up payments on its BaIDS in January 2012 and March 2012 of RM10 million each, and to meet its final MUNIF principal repayment of RM20 million on April 18, 2012. Although the company has taken actions to dispose its plantation and property land, MARC believes that there is an increased risk that Maxtral will be unable to raise the required proceeds in time to maintain compliance with its sinking fund schedule.

The MARCWatch negative placement also considers the heightened risk of an acceleration of the BaIDS in the event that the forthcoming sinking fund payments are missed and approval is not obtained from BaIDSholders for an extension of payment due.

Since MARC's previous downgrade of the ratings in May 2011, Maxtral's financial profile has experienced further deterioration. Its third quarter results showed a steep decline in revenue for the three months to September 30, 2011 and a higher pre-tax operating loss of RM3.3 million compared to the preceding year quarter. The latest results increased Maxtral's year-to-date pre-tax operating losses to RM12.2 million (9MFY2010: RM7.7 million). MARC is concerned over the further deterioration of its liquidity position; Maxtral's cash and cash equivalents as at September 30, 2011 were only RM1.4 million compared to its short-term borrowings of RM62.9 million. The rating agency is also aware that noteholders will not be allowing Maxtral to roll over its maturing notes on April 18, 2012. Maxtral expects the proceeds from the disposal of its plantation land and property land, which have a combined market value of RM72.0 million, to be sufficient to cover its repayment obligations on the BaIDS and MUNIF.

MARC will continue to monitor the progress of Maxtral's asset disposals as well as its compliance with its BaIDS sinking fund schedule and negotiations, if any, with BaIDSholders and noteholders to resolve the MARCWatch placement.

Contacts:
Goh Shu Yuan, +603-2082 2268/ shuyuan@marc.com.my;
Francis Xaviour Joe, +603-2082 2279/ fxjoe@marc.com.my.