MARC DOWNGRADES MAXTRAL INDUSTRY BERHAD’S ISLAMIC DEBT RATINGS; MAINTAINS MARCWATCH NEGATIVE

Mar 20, 2012 -

MARC has downgraded its ratings on Maxtral Industry Berhad's (Maxtral) RM80.0 million Al-Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS) and RM20.0 million Murabahah Underwritten Notes Issuance/Murabahah Medium Term Notes (MUNIF/MMTN) facilities to BBID and MARC-4ID/BBID from BBB-ID and MARC-4ID/BBB-ID respectively. The ratings continue to be maintained on MARCWatch Negative. The rating action affects RM20.0 million of BaIDS outstanding under the RM80.0 million BaIDS programme and RM20.0 million notes issued under the MUNIF/MMTN facility.

The rating action reflects the breach by Maxtral in complying with its sinking fund account (SFA) obligations due in January 2012 and March 2012 to meet its BaIDS of RM20.0 million maturing in April 2012. MARC understands that the bondholders have agreed to grant the company indulgence on the SFA obligations until end-March 2012. In our last rating announcement on December 19, 2011, we noted that the company is highly dependent on asset disposal to meet its debt repayment obligations and the agency is concerned on the ability of Maxtral to execute the asset disposals within the constrained timeframe. MARC now notes that the company has secured a term loan facility from a financial institution to refinance the BaIDS and to redeem a portion of the MUNIF by end-March 2012. As for the remaining MUNIF, the company has until April 18, 2012 to repay the amount, failure of which will lead to a default and the ratings lowered to D.

For the financial year ended December 31, 2011 (unaudited), the company posted an increase in pre-tax loss to RM120.9 million (FY2010: -RM11.99 million) mainly due to impairment of goodwill of RM98.4 million. The continued weak market conditions saw revenue declining to RM21.9 million (FY2010: RM61.5 million). Cash flow from operations and cash and bank balances are modest at RM5.1 million (FY2010: RM10.4 million) and RM1.1 million (FY2010: RM2.4 million).

MARC will continue to monitor the progress of the refinancing exercise and settlement of the remaining MUNIF.

Contacts:
Goh Shu Yuan, +603-2082 2269/ shuyuan@marc.com.my;
Francis Xaviour Joe, +603-2082 2279/ fxjoe@marc.com.my