MARC PLACES KINSTEEL BERHAD’S ISLAMIC DEBT PROGRAMME RATINGS ON MARCWATCH NEGATIVE

Feb 3, 2012 -

MARC has placed Kinsteel Berhad’s (Kinsteel) RM100 million Murabahah Commercial Papers/Medium Term Notes Programme (CP/MTN) and RM100 million Murabahah Medium Term Notes (MTN) Programme rated MARC-2ID /AID and AID respectively on MARCWatch Negative. The rating actions reflect Kinsteel group’s weakening financial measures that are likely to be exacerbated by part-debt funding of the full subscription of the RM280.0 million redeemable convertible unsecured loan stock (RCULS) to be issued by 37.3%-owned Perwaja Holdings Berhad (PHB).

As of date, Kinsteel has paid RM70.0 million for the subscription with the balance to be paid by early February 2012 from a combination of debt and internally generated funds. Kinsteel will at minimum incur cash outflow of about RM104.0 million to fund its portion of the RCULS subscription. Proceeds from the RCULS will be used to meet working capital requirements of PHB’s wholly-owned subsidiary, Perwaja Steel Sdn Bhd (Perwaja). PHB’s ability to service interest on the RCULS is expected to be derived from Perwaja which would also place additional strain on the group’s financial profile.

The challenging operating environment for the domestic steel sector has continued to impact Kinsteel group’s financial performance: on the heels of two consecutive years of losses, the group has registered a pre-tax loss of RM67.2 million for nine months ended September 30, 2011 (9MFY2011) (9MFY2010: pre-tax profit of RM0.3 million). At group and company level, Kinsteel’s debt-to-equity remains elevated at 1.13x (FY2010: 1.12x) and 1.85x (FY2010: 1.96x) respectively.

MARC is increasingly concerned on the ability of Kinsteel to service its financial commitments at a level commensurate with current ratings. The rating agency is undertaking its annual review of Kinsteel’s ratings, following which the MARCWatch Negative placement will be resolved within eight to twelve weeks.

Contacts:
Ahmad Gazzara Czillich, +603-2082 2259/ gazzara@marc.com.my;
Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my.